Taxes: Ottawa's next windfall
The Advocate, Wednesday June 5, 1996
In the next 20 years current estimates of the transfer of wealth to the next generation in Canada is 1 trillion dollars. Statistics Canada is well aware of this fact so is Revenue Canada!
Today there are no death taxes or estate taxes. However, we still pay excessive income taxes on the final tax return of our parents, especially on the last survivor.
Two examples are: first, when the last parent dies RSP assets are included as income. Annuities and RIF's are computed and taxed as income in the final year. Many people have assets in excess of $100,000 in these vehicles. That means paying more than 50% of these assets to Revenue Canada in the form of income tax.
Second, what about the family cottage? Up to 1971 there were no capital gains tax on these assets. 1971 was the valuation year for capital gains purposes. A cottage worth $25,000 then, can easily exceed $200,000 today. The increase of $175,000 is a capital gains and is subject to capital gains tax. This could mean a tax bill of $79,350 based on the top tax bracket of 52.9%.
Unfortunately, I have heard of families who had to sell the cottage just to pay the tax. We have not mentioned other assets such as businesses, rental and U.S. properties. Then there are probate fees of approximately 1.5%. I know that the Ontario government is considering the introduction of succession duties (taxes). Our provincial government is in serious financial shape. They are looking for any and all vehicles open to them for additional revenue. The opening of a casino in
Windsor attests to that with others to follow.
What about Ottawa? I'm sure we are all aware of the problems that the national debt posses. Where do you think they will get the money to attack that problem?
You guessed it, from you and me. With the expected transfer of assets of 1 trillion dollars from one generation to the next, death and estates taxes on that amount can solve the problem. And, if I can think about the possibility, they have also.
What can you do as a family to protect your assets from the ravages of this kind of tax grab. When I worked for London Life in the early 70's I knew a life insurance salesman who claimed they also did estate planning. Although, the purchase of life insurance is an excellent way to protect these assets, what about estate freezes, family cottage trusts, income splitting trusts, spousal trusts, multiple testamentary non-spousal trusts, limited partnerships, etc?
Are those so-called estate planners well-versed in all these? Then there is the most important estate planning tool - a properly prepared will by a lawyer who specializes in these matters. Doing an estate plan correctly can take anywhere from a few hours to several weeks with a number of appointments to ask questions and discuss satisfactory solutions. This all depends on the size of the estate and the complexities of each. Usually an estate under one million is relatively simple and straightforward. Up to two million it takes a little longer. Once the estate exceeds two million, and there are business interests to consider, a more extensive plan is necessary.
This is a relatively new area. I can see a greater need develop once the government, provincial and federal, introduce new taxes to estates. Very few people are set up to do a complete job for those in need of these services. I have been aware of this for a few years, going to seminars and collecting several articles on the subject. I did the estate planning for our family. There was the family cottage in the Muskokas we have owned since 1964 to deal with. We wouldn't want to lose that just to pay taxes. With the death of my father there were other matters to look after. I know of personal situations with others who are not prepared for the tax consequences when their parents die.
Two excellent articles on this subject are, "Closing Cottage Door on the Taxman" and "How to Have the Last Laugh." Contact me for your copies.
P.S. I just ran across another one. It was in "The Money Digest" and is written by Riley Moyes, author of the "Money Coach" entitled, "Inheritance Taxes Are Coming."
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