DEATH AND TAXES -- Estate Planning Advice
By Darryl Aarbo. Barrister and Solicitor
“…in this world nothing can be said to be certain, except death and taxes.”
—Benjamin Franklin, in a letter to Jean-Baptiste Leroy, 1789
As was stated by Benjamin Franklin, two of the great certainties in life are death and taxes. It should also be noted that death does not get you out of paying any taxes. In fact, it may result in you paying more taxes in a particular year than would normally have been owed if you had survived. Good tax planning is always a good investment if you want your heirs to get the maximum benefit from the money you have saved.
When you die someone will have to file on your behalf (usually your executor) various tax returns. There will be a deemed year end on your date of death. Your estate will be responsible for any taxes accrued up to that date as you normally would. In other words, any money earned as income up to that point would be declared in the final return and you would be taxed the marginal tax rate where your income puts you. This is where good tax planning is crucial because there can be a “deemed disposition” of your assets upon your death. For example, your RRSPs are normally all deemed to have been sold on your date of death. If you have $200,000.00 in RRSPs then your estate is going to have a very big tax bill because all of those RRSPs will be fully taxed. A good portion of that money is going to be taxed at the top bracket of 39% (Alberta). With tax planning the RRSP deemed cash in may be able to be avoided by naming a spouse or common-law partner as beneficiary of the RRSP.
Good tax planning may also involve purchasing property in joint names or transferring it into joint names so that on death of one joint owner the deemed disposition does not then occur.
Further, after you die then a new taxable entity will be created, that being your “estate”. An estate is taxable in an analogous fashion of the Corporation. There is no physical entity per se, but it is a legal entity and it is subject to taxation. If there is any income earned after your death, such as interest or rent, then trust returns will have to be filed for every year after you die until your affairs completely resolved and the Canada Revenue Agency (“CRA”) issues a document stating that all of the deceased taxes have been paid in full.
There are strict timelines in place by CRA. Failure to meet these deadlines can result in penalties and interest:
· If the death occurred between January 1 and October 31, the due date for the final return is April 30 of the following year;
· If the death occurred between November 1 and December 31, the due date for the final return is six months after the date of death.
· The due date for filing the T1 return of a surviving spouse or common-law partner who was living with the deceased is the same as the due date for the deceased final return indicated above
If the deceased or the deceased spouse or common-law partner was carrying on a business in the year of death the following due dates apply:
· If the death occurred between January 1 and December 15, the due date for the final return is June 15 of the following year;
· if the death occurred between December 16 to December 31, the due date for the final return is six months after the date of death.
For more information contact the lawyers of Courtney Aarbo Fuldauer LLP, Barristers & Solicitors.
*The information contained in this blog is not legal advice. It should not be construed as legal advice and should not be relied upon as such. If you require legal assistance, please contact a lawyer*