{"id":343,"date":"2018-08-16T12:52:27","date_gmt":"2018-08-16T19:52:27","guid":{"rendered":"https:\/\/mgfadvisory.ca\/news\/?p=343"},"modified":"2018-08-23T15:19:29","modified_gmt":"2018-08-23T22:19:29","slug":"the-asset-transfer-strategy-making-sure-the-cra-is-not-one-of-your-heirs","status":"publish","type":"post","link":"https:\/\/mgfadvisory.ca\/news\/2018\/08\/16\/the-asset-transfer-strategy-making-sure-the-cra-is-not-one-of-your-heirs\/","title":{"rendered":"The Asset Transfer Strategy Making sure the CRA is Not One of Your Heirs"},"content":{"rendered":"

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In most cases one has very little control over what happens after death; however, from a financial standpoint, there are certain actions you can take now that will help control what happens to your assets after passing, lift potential burdens from your family and loved ones and, most importantly, keep the CRA from becoming one of your heirs.<\/p>\n

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Deemed Disposition <\/strong><\/h3>\n

Upon one\u2019s passing, the Canadian Tax Act deems an individual must dispose of all assets at fair market value, with the exception of rolling them over to a spouse at cost. However, the deemed disposition will presumably occur upon that spouse\u2019s passing. What this essentially means is that when you pass away, your investments are considered \u2018cashed out\u2019 and applicable taxes are determined by the CRA.<\/p>\n

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A Taxing Situation <\/strong><\/h3>\n

When you are deemed to dispose of your assets on death, the difference between what they\u2019re worth and what you paid for them creates taxable income. For example, the deemed disposition rule for an RRSP or RRIF\u2019s considers the balance of the account as a taxable withdrawal on death, where one would have to pay 100% tax on the deemed withdrawal. If someone held rental property or corporate shares, the deemed disposition on death rule would trigger a capital gain on those capital properties.<\/p>\n

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What If I Do Nothing?<\/strong><\/h3>\n

Many people are shocked at how much they would owe in taxes and fees if they did nothing in terms of estate planning before their passing. Indeed, their income tax bill, probate fees, property transfer taxes, professional accounting and lawyer fees can add up to a very large sum.<\/p>\n

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Potential Burdens <\/strong><\/h3>\n

Once people realize how much they could owe after they\u2019ve died, the next question is usually, \u201chow will I finance it and how will I or my estate\/heirs pay for it?\u201d<\/p>\n

In some cases, the answer is straightforward: a non-registered investment account or an amount in RSP\u2019s that creates enough liquidity to cover the costs is one simple solution. In other cases, your heir may have a line of credit or a good relationship with a banker so that they can borrow what they need to pay off whatever is owing.<\/p>\n

However, in some circumstances, the liability upon death is so large that you could be putting your heirs in a very difficult financial situation.\u00a0 You may have a very large bill to pay and the assets you\u2019re passing on to your heirs may not have liquidity. As a result, they may be required to sell some assets very quickly (which rarely results in the realization of fair value), or it may force them into very difficult financing or borrowing arrangements, which can cause financial burden.<\/p>\n

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So, what can you do about this? <\/strong><\/h3>\n