Estate planning is important in keeping money out of CRA’s hands – BDO’s Scott Conner explains

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Is the Canada Revenue Agency one of your beneficiaries?
Without proper estate planning, you may be paying more than necessary to the Canada Revenue Agency (CRA) in taxes, thereby reducing your estate value for your beneficiaries, and, in essence, making the CRA one of your beneficiaries.

Deemed income inclusions

In the year that you die, your final tax return will include certain deemed income inclusions in addition to the normal income you earned while you were alive. Your normal income may include employment income, pension income, payments from your Registered Retirement Income Fund (RRIF) or Registered Retirement Savings Plan (RRSP), investment income from your non-registered investment portfolio and payments from the Canada Pension and Old Age Security Plans earned up to the date of your death. The deemed income that will be reported on your terminal tax return includes the value remaining in your RRIF or RRSP as well as 50 per cent of the amount of any net capital gains inherent in your non-registered portfolio, any private company shares that you own, and any real estate that does not qualify for the principal residence exemption.

This deemed income could significantly increase the amount of income you report on your final personal tax return and cause you to pay taxes at higher tax rates. While it may not be possible to completely eliminate the additional income taxes, planning can be undertaken while you are alive to minimize the amount of taxes you pay on your final tax return.

Estate Administration Tax

In addition to income tax, your estate may also be subject to the Estate Administration Tax. This is not a new tax; it is just a new name for Probate Fees. Estate Administration Tax is payable on certain assets in your estate. Similar to income taxes, planning can be done to mitigate the amount of Estate Administration Taxes payable on your death.

An Integrated Process

Maximizing the value of the assets available and ensuring they transfer to the right beneficiaries in the most effective manner is just one component of estate planning. Other components include providing for your health and financial care using Powers of Attorney, naming appropriate guardians for minor children, ensuring that you have adequate insurance coverage (life, disability and/or critical illness), and providing for beneficiaries with special needs or those requiring protection from creditors.

An estate plan is not a one-time event. It is a process that happens and changes over time as your life situation changes. It involves not only your tax advisor, but also your lawyer, banker, insurance and investment advisor.

Make sure estate planning tax specialists will work cohesively with your other advisors to develop and monitor your estate plan throughout your life.

They say that there are only two certainties in life; death and taxes. We cannot stop death and unfortunately, nobody knows for sure when death will knock at their door. However, we can plan to minimize taxes by having a solid estate plan.

If you have questions about estate planning, contact the Huntsville office of BDO at 705-789-4469.

Scott Conner is a Tax Partner at BDO Canada LLP. With over 15 years of experience as CPA, CA specializing in Canadian income tax, Scott helps a variety of individuals and private companies pay the least amount of tax possible with great tax planning strategies. He also specializes in planning for estates, trusts, and non-resident dispositions of real estate.

 

 

 

 

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