By Patty Fleischman
When drawing up a will it is important to remember that your estate is not passed on to your heirs tax free. So what you think is generous, so does the government, and they want a piece of that generosity. When you die, your legal representative has to file your final tax return to the Canada Revenue Agency (CRA) and pay any tax owed up until the point of death. This includes taxes on some of the assets you owe, such as your car, your cottage and certain types of investments. (Your principal residence is a notable exception to this tax.)
According to Dale Barrett, Managing Partner of Barrett Tax Law, “Upon death it is important to remember that for tax purposes it is as if the deceased sells all of their assets to their estate at fair market value.
That means that if they have any properties (other than a principal residence which is not taxable) or if they have any capital assets (gold, artwork, stocks, investments, etc.), and if these assets have a fair market value at the time of death which exceeds their purchase price, then there is a capital gain which is taxable. This capital gain is the difference between fair market value at death and the cost to the taxpayer. For example, a stock portfolio which cost $10,000 and which is valued at $80,000 at the time of death will result in a capital gain of $70,000. This is taxable. And like all capital gains, 1/2 is tax-free and the other 1/2 is subject to the capital gains tax.
If the taxpayer has other assets which are worth less than the amount paid, or if the taxpayer has a capital loss which can be carried forward, then they can offset any capital gain with the capital loss.”
In addition to income tax, provinces also have probate fees, or also known as estate administration tax, which is calculated on the assets of the deceased. The rates are shown below:
$1,000 or less - no tax
on the first $50,000 - $5 for each $1,000 or portion (0.5%)
on the amount over $50,000 - $15 for each $1,000 or portion (1.5%)
The above information is current as of January 9, 2019.
So for example, for an estate valued at $240,000 the tax would be calculated as follows:
· $5 per thousand for the first $50,000 of the estate
· $50,000 ÷ $1,000 = $50
· $50 X $5 = $250
· $15 per thousand for the remaining $190,000 of the estate
· $240,000 - $50,000 = $190,000
· $190,000 ÷ $1,000 = $190
· $190 X $15 = $2,850
For a total of $3,100 ($250 + $2,850) payable to the Minister of Finance.
These are important factors to consider when making your will. Always best to consult with professionals when dealing with important issues that affect your loved ones.
Please visit our website to find out more about how we help the Sandwich Generation and their families.