Tips for Reducing Estate Taxes in Canada
Even though Canada doesn’t have any “death taxes,” estate taxes on your Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs), can be significant. Having a plan can keep those taxes at a minimum and maximize the benefits to your family.
The following are tips for your Estate Tax Planning:
- Leave capital property that has gone up in value to your spouse.
- Name your spouse as beneficiary of your RRSPs and RRIFs.
- Leave your children or grandchildren cash or property that has increased a lot in value.
- Use the principal residence exemption to leave your vacation property to your children without triggering a capital gain.
- Give away capital property while you’re still alive if you have a capital loss to offset any capital gain
- Donate money to charity in your will.
- Make sure your will gives your executor power to use your unused RRSP contributions to make a contribution to your spouse’s RRSP.
- Give your executor enough information to make use of any unused capital losses when you die.
What to do When Someone Dies in Canada:
Are funeral expenses, probate fees, or fees to administer the estate tax deductible?
No, they are personal expenses and cannot be deducted.
Who reports a death benefit that an employer pays?
It will depend on who received the death benefit. A death benefit is income of either the estate or the beneficiary who receives it. There is an allowance up to $10,000 of the total of all death benefits paid (other than CPP or QPP death benefits) which is not taxable
Where do I report Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) death benefits for the estate of the deceased?
A CPP or QPP death benefit can be reported either on the tax return of the recipient beneficiary of the deceased person’s estate, or on a T3 Trust Income Tax and Information Return, for the estate of the deceased. If the estate then pays the death benefit to the beneficiary, a T3 slip is issued in the beneficiary’s name. The amount of the CPP or QPP death benefit is shown in box 18 of Form T4A(P),Statement of Canada Pension Plan Benefits. Don’t report the amount on the deceased’s return. Unlike a death benefit that an employer may pay to the estate or to a named beneficiary, this benefit is not eligible for the $10,000 death benefit exemption. You have to report all other CPP or QPP benefits on the deceased’s return.
Who reports the amounts an employer pays for vacation and unused sick/ paid leave?
Vacation pay is income of the deceased person and can be reported on the line items a return for rights or things. Payment for unused sick leave is considered a death benefit and is income of the estate or beneficiary who receives it.
Who reports any income earned in the TFSA?
When the individual of a deposit or an annuity contract under a TFSA dies, the holder is considered to have received, immediately before death, an amount equal to the fair market value of all the property held in the TFSA at the time of death. No income should be reported by the deceased on the final return or any optional returns. After the holder’s death, the annuity contract is no longer considered a TFSA and all earnings after the holder’s death are taxable to the beneficiaries in the year they receive this income
If the deceased person was paying tax by installments, do I have to continue those payments?
No, the only installments we require are those that were due before the date of death but not paid.
Why do I have to return the deceased person’s GST/HST credit?
Since the payments are an advance on purchases for the current calendar year, you have to return GST/HST credit payments that were paid to the deceased after their death. If the deceased was single and the estate is entitled to the payment, a cheque will be issued to the estate. However, the cheque that was issued to the deceased person must be returned to before a reissue of the payment to the estate.
Link to CRA Website for more information