Taxation on Death

Sobering is the fact that without proper planning the size of your final tax obligation could in fact be more than the sum of all taxes paid during your lifetime! Though Canada does not levy a death or estate tax per se, all property is “deemed” to be disposed of at fair market value immediately prior to your passing – resulting tax consequences will depend upon the source of income as below:

Realized Capital Gains

Other than your principal residence, all property, including personal use property, may be subject to capital gains tax. As above, capital properties are deemed disposed of at fair market value immediately prior to your passing –realized capital gains are taxable by half (50% inclusion rate) in your final year and at your marginal tax rate.

Though marketable securities may be easy to value, real estate and/or business assets including equipment, goodwill and other items may require professional valuation or appraisal. Realized capital gains are determined by way of the following formula:

Proceeds – (Adjusted Cost Base + Fees) = Capital Gain/Loss

Just as the fair market value of an asset may be difficult to determine, the cost (ACB) of an asset may be affected by a number of factors including:

• Capital improvements
• $100,000 capital gains exemption (an election made in 1994)
  
• Reinvested distributions

Exemption from Capital Gains Tax

As above, a principle residence is exempt from capital gains tax in life, but also upon your passing. Since 1982, only one principal residence is allowed, however your executor may designate any property which is/was ordinarily inhabited by you, including a foreign property...more

Taxation of Registered Plan Assets

Unless a spouse or eligible dependent child or grandchild is named as beneficiary, upon your passing all remaining registered plan assets are deemed disposed of immediately before death, and are taxable as income in the year of death.

Tax on Unrealized Income

Salary owed, vacation pay, dividends declared but not paid, royalties due, accrued interest, CPP/OAS owned and other incomes must be reported on a "rights and things" return.

Foreign Estate Tax

A Canadian resident may be required to pay US estate tax – shares owned in US companies (even if held in a Canadian brokerage account) and/or US property owned may be subject to US estate tax if your worldwide estate is greater than U$1.2 million…(more)

Probate Fees

Charged in all provinces except Quebec, probate fees are levied to have a will validated by a court. Though steps can be taken to avoid probate fees, sometimes the associated risk and/or cost may prove to be more than the fee itself; for instance probate Fees levied in British Columbia are approximately 1.4% per the following formula:

• No fee for estate < $10,000
• $208 for estates between $10,000 and $25,00
• $6 per $1000 from $25,000 to $50,000
• $14 per $1000 over $50,000