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Nothing is certain except death and taxes. That immutable truth was first uttered by Benjamin Franklin, and is duly enforced by the Canada Revenue Agency . With upward ofpassing between Canadian estates and beneficiaries this decade, the significant tax implications require careful planning.
For spouses, the law generally allows for the rolling over of assets on a tax-free basis. However, for children and other beneficiaries, there are only a couple of exemptions, such as zero taxation on a principal residence and the gifting of cash. “On everything else, there’s a tax consequence,” Ms. Dawson notes.
“The wealth plan is the best way to determine what tax consequences exist. We do a draft tax return to show cash flow, what would be owing, how we would execute the estate plan and how taxes would be funded,” Ms. Dawson says. “It makes sense to start realizing some of those gains ahead of time so that it doesn’t all need to be realized at that higher inclusion rate at death,” Mr. Lowry says.
“Clients aren’t sitting on cash but in assets that have unrealized gains. By gifting those proceeds, we’re creating a tax liability. Why would we create a new tax liability ahead of time when we could defer it?” she says. He cautions that when it comes to substantial amounts of money being gifted, clients can run afoul of the so-called general anti-avoidance rules. The provisions empower the CRA to assess taxes in cases in which a taxpayer followed the “letter” but not “spirit” of the law, “causing a misuse or abuse of the Income Tax Act,” the CRA says.
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