- April 30, 2024
- Posted by: legaleseblogger
- Category: Related News
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**Understanding Inheritance Taxes in Canada**
With the recent surge of concern among individuals regarding aging parents and potential taxes on inheritance, it is important to address the matter with clarity and accuracy. In Canada, contrary to popular belief, there are no inheritance taxes to worry about. This fact alone should bring some peace of mind to those navigating the complexities of estate planning.
However, it is essential to consider other financial implications that may affect the value of the inheritance. For instance, probate fees and taxes vary depending on the province. In Ontario, these fees can amount to 1.5% of the estate value exceeding $50,000, with an additional $15,000 for every million dollars. It is crucial to factor in these costs as they can impact the overall amount inherited.
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**Exploring Different Assets and Tax Implications**
When it comes to specific assets within the estate, it is essential to understand any potential tax implications that may arise. In the case of cash, TFSA accounts, and primary residences, there are generally no taxes paid by the estate upon inheritance. The value of these assets is typically transferred as is, without additional tax burdens.
On the other hand, assets such as RRSPs, non-registered investments, and investment properties may have varying tax implications. For instance, the withdrawal of funds from RRSPs may trigger tax payments according to existing laws. Similarly, the new proposed capital gains inclusion rules may apply to non-registered investments and investment properties if the estate exceeds a certain threshold.
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In conclusion, while there are no inheritance taxes in Canada, it is crucial to consider other potential financial implications that may impact the value of the estate. By leveraging the AI Legalese Decoder and staying informed about the tax implications of different assets, individuals can navigate the complexities of estate planning with confidence and clarity.
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****** just grabbed a
Wait.. you guys are getting/expecting inheritances?
My only inheritance is generational curses and diabetes.
Thank you. As a side note- it’s kind-of wild that people are thinking that the new capital gains inclusion rate is going to increase the taxes on rrsp withdrawals – which already has an inclusion rate of 100%, and always have.
Some tweaks:
Cash in a bank account is subject to probate (not income tax but still a small fee and province dependent).
RRSP, if a beneficiary is assigned, most banks and brokerages (not sure if province dependent or not) will send the RRSP without a withholding tax to the beneficiary. On the deceased’s tax return the RRSP will be treated as it the full value was withdrawn on their date of death. i.e. the full value of the RRSP will be added to their taxable income. Usually the assets of the estate will be used to pay this tax but the beneficiary should anticipate that they may have to pay the tax on this income.
I think a lot of people misunderstand the difference between a certain tax rate on capital gains and think that the government just takes the entirety of the increased value of the house.
Thanks for posting, this is a nice contrast to the people screaming wildly on my Facebook, lol.
The most common thing to occur is a deemed disposition at death, where the home/cottage is in essence sold with no money exchanging hands, as you alluded to in your post the market value is the new ACB. Not everyone has the money to buy their family cottage, or a second property at market value. This is where issues arise with tax planning, and often trusts are needed to be setup (which don’t get the 250K grace personal accounts do). The analysis is helpful but ignores the most likely scenario for tax planning for inheriting cottages, or secondary (investment) properties.
In Ontario cash will have probate fees according to the local credit union and a TFSA needs to have a named beneficiary to avoid probate fees.
Took 10 minutes to add named beneficiaries and gifting is the easiest way to avoid probate fees on cash.
How does it work for a cottage?
Say the owner bought a cottage in the mid 70s for $30k, and it’s now worth $500k. This owner only has one living child that they’re passing the cottage down too. It is not their primary residence.
At the time of death I believe they consider it to have been sold for tax purposes. So capital gain of $470k, the estate pays the capital gain tax and then it gets passed down to the child.
Am I wrong about any of this?
its surprising how much people don’t understand how capital gains works in the first place. people around me keep thinking this new change means they will pay 66% tax on the sale of say a secondary property and that’s not at all the case at all
>RRSP – No Change The money is withdrawn, the estate pays taxes following existing tax laws and the remaining cash is disbursed to you.
This is missing 2 important distinctions.
1/ If the RRSP has a named beneficiary the assets won’t flow through the estate. The beneficiary will receive them directly from the RRSP provider.
2/ The deceased and the beneficiary are jointly and severally liable for the tax on the deemed disposition of the RRSP. And,
>Nothing in the Income Tax Act requires CRA to go after the deceased’s estate first for the tax. While CRA has a practice of only going after the beneficiary if the estate is insolvent, it has no legal requirement to do that.
source = https://www.jamiegolombek.com/articledetail.php?article_id=1493
>Firstly there are no inheritance taxes in Canada. So calm down.
I see this comment all the time and it isn’t strictly true. We don’t have a ‘inheritance tax’ in the sense that there is a taxable event on death that means that some % of assets held by the deceased person are now owed to the CRA as tax.
But most provinces do have a ‘probate fee’ which is a fee levied by the Courts to process the application for grant of probate, i.e. to formalize the will and formally appoint the executor. This is a legally required step.
In BC, the [probate fee](https://www.bclaws.gov.bc.ca/civix/document/id/complete/statreg/99004_01) is about 1.4% (there is a slight sliding scale). In Ontario, I believe it is 1.5%. This money ends up in the general revenue of the Province. There are a bunch of exemptions such as the primary residence.
So while it is true that there is no formal federal ‘inheritance tax’, there are probate fees in most provinces that do essentially tax the amount of money in the estate via the court application process.
This is useful info. We found out a lot of this when my mom passed away a couple of years ago.
If a parent has an RRSP or Rif there would be tax on their final income tax year.
(but the nice thing is registered accounts like RRSP RIF or TFSA there is no probate, and accounts that are joint
though one needs to trust the kids if you are making them joint on the account) But it can come in handy if the parent is no longer able to manage things due to dementia, stroke or some other disability.) Hence really good idea for folks to get Powers of Attorney and Wills for couples and maybe the kids.
INVESTMENT PROPERTIES (this is about the only new thing) if they own property that is not their residence, there are capital gains. My mother co-owned the small unit that we use in our print business. As a persons assets are deemed sold at FMV on their death date those capital gains were triggered. Of course the unit is not sold as we are still running the business but as we owned it for 30 years just her 50% of ownership (was 500k)
For those who are counting on the bank of mom and dad when they buy a home – if your parents help you and want to retain a portion of the title – there will be capital gains for them on that portion. In our case the capital gains ended up being more than the portion of the down payment my parents helped us with. So think about an alternate way if you are helping your kids, maybe just let them make their own mistakes.
When we were dealing with the bank that had my mom’s investments the banker was trying to get us to keep it with them pushing their particular funds – but we pointed out that most of it was going to get wiped out on the final income tax. He said that unfortunately that’s pretty common.
All told, it was some $160k in tax, 20k in probate fees, another 10k or so in legal fees and the one that irks me the most is we had my brothers accountant do her final income tax, even though he had 3 months to do it he filed on the evening of the last day possible (and the CRA office was closed so there was an automatic penalty) he then took so long to file the rest we ended up with 17k in penalties and interest. I’m in the process of pleading my case with the cra because we thought we had a professional who knew what he was doing. We might even complain to the CPAB.
I should add, we are still much better off than the young generation and I really feel for them. I know we will likely be helping our kids when they want to buy a home. And there are many that won’t even get that help.
I thank OP for listing those items separately – the most important takeaway is that it really pays to learn in advance and plan for this because most people don’t. I knew a fellow who was an estate attorney and asked him why focused on estate planning and he said so many people don’t and there’s a huge amount of money that ends up with the government. Which may not be what they intended.
I have recently been through a few estate processes and it isn’t as simple as you suggest. Houses (primary residence) are subject to the new capital gains inclusion rate of 2/3 of the gain from the date of death on until the house is sold. There is no $250k exemption for estates so this is on the first dollar. I had one estate where it took over 2 years to sell because the courts were so backed up with covid, I have no idea if the courts are back to normal yet. If the estate is named as beneficiary in the TFSA or (other registered plans) then the new 2/3 rate applies to capital gains on those as soon as the plan is deregistered (before deregistration it is 100% inclusion as before). Lesson here is make sure you name beneficiaries and contingent beneficiaries correctly in your TFSA.
Well isn’t it like 10% of Canadians own cottages. That’s going to be a hit….
Many passed down generations
The conclusion is the exact opposite of the title you’ve chosen. Our inheritance is NOT safe if there are capital gains in non-registered accounts or property over 250k….
yeah but rrsp and tfsa have limits. I want to save up and invest in non-registered for my daughter. It won’t be much now but 18 years from now it can easily be over 250k. Why am i being penalized for planning ahead and saving up? I am by no means rich. This is just as usual. Govt says it’s raising taxes for the rich, but ends up oliberating the middle class more. Rich always escape taxes with help from accountants, shell companies, etc.
This PSA is not in good faith.
As we have seen just recently with the capital gains inclusion tax changes, policy and federal budget decisions can dictate big changes on a whim.
It may be safe today, doesnt mean it will be safe tmrw 🙂
What inheritance?
The thing is about the probate fees, it needs to be paid upfront. So, if you are like me, with a low income you are screwed! I was lucky that the bank account was frozen the day after I was able to pay the fee. but then you can’t sell the house until you have the probate and you still have to pay municipal taxes and bills.
In my case the probate fee was 10k because my mom gave away 330k to a crook just a few months before passing away!
I paid 13k probate and 265k in tax when my mom died. 🥴
OK, so technically you are correct, there is no death tax and TFSA and primary residence are protected.
However, there is a significant risk for people who have a lot of money in RSP’s or have other large non-protected investments.
The trick comes in the fact that the investments are to be liquidated when the person passes, and then all of that money counts as income for the estate. Because such a large amount of money is made in a single year, the bulk of the money will likely be taxed at 50% before it goes to those people named in the estate. This ends up feeling like a death tax.
Example someone has $1 million in an RSP . They are the last spouse so the money is to go to the next generation. All the stocks and bonds from the RSP are sold. This counts as $1 million in income for that year. After taxes on the estates income for the year There is $504,145 left for the children.
Ummm…. Yes no inheritance tax but your deceased relative does have to pay income tax the year they die. When they do so almost all of their assets are “deemed dispossessed” eg. sold at market rate the day before they pass on. So, often this is a substantially higher tax bill then the persons typical annual tax. In the year or two after tour estate is taxed as a trust.
So, yes YOU don’t get taxed for inheritance, but deeply misleading to imply the lump of money isn’t taxed when someone passes on.
A good estate plan involves careful planning of how assets will be transferred to minimize tax burdens. At this point even leaders in the field are unsure how the new capital gains taxes will impact estate plans.
Point being – ask professionals for personalized advice & follow LinkedIn posts & blogs by pros who specialize in the area.
I think we also need to get rid of the factor of everyone expecting an inheritance.
There’s no inheritance tax….yet.
What if your parents had an investment property that’s paid off no mortgage and they pass it to you but their estate doesn’t have enough to pay for capital gains, could you pay the capital gain tax yourself and keep the property or are you forced to sell?
Not if it’s a 2nd marriage for your parent.
No inheritance tax but there is a death tax.
The dead person will be taxed and you need to file the deceased person’s last set of taxes. It’s effectively a 50% tax rate.
Look into it it’s extremely sneaky
Non Registered Investments have to be sold? you can’t just pass on the portfolio?
I wonder how many family farms this will destroy.
Reddit is such a terrible echo chamber.
Fact is most people receive some kind of inheritance, especially if the last remaining parent owned a home.
Probate at least in Ontario is a huge tax on the estate which impacts how much inheritance is available.
So your claim of no inheritance tax is slightly misleading.
Seconding the other poster, you’ve skipped an entire area of probate, which absolutely will happen if your parents have anything over $50,000 (in BC). So if they own their own home, you will absolutely have to go through probate.
Super misleading. Please do your research people, it’s posts like this that make my goddamn blood boil.
Directly taxed? No.
Indirectly taxed? Yes.
Inheritance is getting taxed to shit under the new rules. It’s under the guise of going after the top 0.20% or whatever stupid rhetoric the liberals want to go with.
Reality is, when someone dies, there’s a “deemed disposition” at fair market value of all assets. The lack of control and timing over the realization of capital gains is what makes it indirectly an inheritance tax.
If the liberals want to make the argument that it only affects 40,000 Canadians annually, my question is how many of those Canadians died? I’d bet 20,000 of those Canadians are terminal returns aka final death tax returns.
Are any people with aging parents concerned about what happens if the parents die but were co-owners of their child’s home?
RRSP – My understanding is that the estate is responsible for taxes, and there no withholding when it goes to a named beneficiary, the whole amount goes to them. The beneficiary can be assessed for taxes owing on the RRSP if they are not paid.
Was there a change that there is now tax withholding before a RRSP goes to a beneficiary?
Do you know if there are different implications with inheriting money from their international investments? Like if they have property or money overseas outside of Canada but you reside in Canada – what would be the tax implications of that?
So my mom owns 2 properties and my brother lives there at the second property. Can’t my mom just put my brother under primary residence for the second property to avoid the capital gains tax?
Thanks, OP for the succinct explaination.
Good post
My what now? I AM my inheritance… if you can call it that
Inheritance? I’m spending it all.
What’s an inheritance?
With the sheer size of the wealth transfer on the horizon, it’s just a matter of time until the government finds ways to profit from it. We might be safe for now, but very likely that we’ll see the government take their share with new taxes.
LOL, Inheritance, my boomer parents are going to blow it all with a smile. Welcome to the greatest transfer of wealth ever seen in human history, it just not going to be transfered in the form of an inheritence.
“The property can be sold to settle the tax liability and the remaining cash is dispersed to you.”
Why in the HELL should there be any tax liability? The asset was purchased with money that was taxed, taxes were paid when it was purchased, and taxes were paid annually. Why should the property owe taxes if the owner passes and wills it to his/her children?
This is robbery!
what a let down.