Death

1
Death Taxes

• Business 4099

2
Agenda

• General Information
• Spouse As Beneficiary
• Special Rules
• Probate Fee
• Relevant Income
• Terminal Return

3
Generally.

• When a taxpayer dies, their executor must file a
  terminal return to report income up to the date
  of death.
• Any income earned after death is charged to the
  estate.

4
Generally.

• Sub. 70(5) of the ITA states that a taxpayer is
  considered to have disposed of all of his/her
  capital property (NDP or DP) at its FMV
  immediately prior to death.
• CG or CL will be realized.
• In the case of DP, recapture may be realized
  depending on the UCC of the class.
• No terminal loss can be realized because there
  are still assets in each class.

5
Generally.

• The CG or CL is reported on the deceased
  taxpayers income tax return for the year of
  death.
• A beneficiary is deemed to acquire any capital
  property received through an inheritance at its
  FMV.

6
Agenda

• General Information
• Spouse As Beneficiary
• Special Rules
• Probate Fee
• Relevant Income
• Terminal Return

7
Spouse as Beneficiary

• If the taxpayers spouse (including CL and same
  sex) is the beneficiary of the capital property,
  the taxpayer is considered to have disposed of
  the capital property at its ACB (if NDP) or its
  UCC (if DP).
• The spouse is deemed to have acquired the capital
  property at its ACB.

8
Spouse as Beneficiary

• Sub. 70(6.2) of the ITA provides an election
  whereby the beneficiary rules need not apply to
  certain property subject to the election.
• If the election is made, the deceased taxpayer is
  deemed to have disposed the capital property at
  its FMV, even though it is received by the spouse
  as a beneficiary.
• This election is usually made when the deceased
  taxpayer has CLs realized from other capital
  property owned at the time of death and the
  executor of his or her estate wants to generate
  CGs to offset theses CLs.

9
Agenda

• General Information
• Spouse As Beneficiary
• Special Rules
• Probate Fee
• Relevant Income
• Terminal Return

10
Special Rules.

• Charitable donations can be carried back.
• Medical expenses paid, can be pooled for any
  24-month period that includes the say of death
  (as opposed to a 12 month period).
• Full amount of RRSP or RRIF must be brought into
  income (subject to beneficiary).

11
Special Rules.

• Capital losses can be deducted against income.
• Any loan balance from a HBP of LLP must be
  included in income (unless a liability is assumed
  by the surviving spouse).

12
Agenda

• General Information
• Spouse As Beneficiary
• Special Rules
• Probate Fee
• Relevant Income
• Terminal Return

13
Probate Fees

• Charged by the courts to grant letters probate
  which confirm that the deceaseds will is valid
  and that the current executor has the authority
  to administer the estate.
• Usually based on the total value of the estates
  assets, with no regard for the debt.

14
Probate Fees

• Some Probate Rates
• Ontario 1.5 gt 50k
• BC 1.4 gt 50k
• N.S. 1.3 gt 100k
• QB Flat Fee

15
Probate Fees

• Tips to Minimize Probate Fees
• Try to hold property with your spouse as joint
  tenants with a right to survivorship. (On death,
  property will not be part of estate).
• Try to keep certain assets out of your estate.
• Change location of property to a location where
  probate fee is lower (Alberta).

16
Probate Fees

• Tips to Minimize Probate Fees
• Transfer debt to real estate that has no mortgage
  to lower value for probate fee purposes.
• Make a secondary will that only includes assets
  that can be passed to beneficiaries with no
  probate fee. Thus the first wills (with assets
  subject to probate fees) value will be decreased.
  

17
Agenda

• General Information
• Spouse As Beneficiary
• Special Rules
• Probate Fee
• Relevant Income
• Terminal Return

18
Relevant Income

• Besides the normal taxable income, for either
  employment, RRIF, and government payments, there
  are two other type of income that are relevant
  for the terminal return
• Accrued Income
• Rights and Things

19
Relevant Income

• Income Accruing At Death (sub. 70(1))
• This is referred to a periodic amounts, pursuant
  to sub. 70(1) of the ITA.
• This is income that is paid periodically, but
  which is till accruing at the date of death.
• Subject to notional severance.
• The amount must be payable on periodic basis.
• Interest
• Royalties
• Annuity Payments

20
Relevant Income

• Income Accruing At Death
• These periodic amounts will be deemed to have
  accrued to have accrued in equal amounts and will
  be included in the taxpayers income for the
  terminal year.
• The remaining part of the amount will be included
  in the income of the deceased individuals estate.

21
Relevant Income

• Rights or Things (sub 70(2))
• Rights or things are amounts that do not fall
  within the scope of sub. 70(1) of the ITA.
• Are amounts that will produce income (as opposed
  to capital gains) for the deceased or some other
  person.
• Crucial difference between periodic amounts and
  rights or things is that a periodic amount is not
  due or receivable before the death of the
  taxpayer.
• Therefore, if the amount was not periodic or it
  was due before death but not received, it is
  probably a right or thing for the purpose of sub.
  70(2) of the ITA

22
Relevant Income

• Rights or Things (sub 70(2))
• Some examples of rights or things include
• Sick days or vacation days accumulated.
• Dividends declared but not yet received.

23
Relevant Income

• Rights or Things (sub 70(2))
• Rights or things are subject to the following
  income tax consequences
• Legal representatives may elect to include this
  amount on a rights or things income tax return
• Legal representatives may transfer the amount to
  the deceased individual's beneficiaries (sub.
  70(3)).

24
Agenda

• General Information
• Spouse As Beneficiary
• Special Rules
• Probate Fee
• Relevant Income
• Terminal Return

25
Terminal Return

• The onus rests on the deceased individuals legal
  representative, estate trustee, for filling all
  income tax returns, including the terminal return
  for the deceased.

26
Terminal Return

• Deadlines
• The ITA distinguished between two type of
  taxpayers when determining the time period
  allowed for filling a terminal return.
• Individuals Who Carried On Business
• Other Individuals

27
Terminal Return

• Individuals Who Carried On Business
• If an individual died between November 1 of that
  year and June 15 of the following year, an income
  tax must be filed on or before the later of
• Six months after the date
• June 15 of the following year
• If the death occurs at any other time, the return
  must be filed on or before June 15 of the
  following year.

28
Terminal Return

• Other Individuals
• If an individual died between November 1 of that
  year and April 30 of the following year, an
  income tax must be filed on or before the later
  of
• Six months after the date
• If the death occurs at any other time, the return
  must be filed on or before April 30 of the
  following year.

29
Death Taxes

• Any Questions?