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  • What happens when you inherit an IRA or 401(k)?

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    Spousal beneficiary

    When a spouse inherits an IRA or 401(k), they can take over the account as an inherited account or transfer the account into their own IRA or 401(k) on a tax-deferred basis. 

    IRA and 401(k) accounts generally have required minimum distributions (RMDs) beginning at age 73. These are subject to US withholding tax for a Canadian resident, and Canada taxes the withdrawal with a credit for the US tax already withheld. 

    A US citizen living in Canada must report their worldwide income on both a Canadian and US tax return. 

    Non-spouse beneficiary

    When a non-spouse beneficiary inherits, the account value is not subject to immediate tax. This differs from the taxation of an RRSP, DC pension, or other Canadian retirement accounts for non-spouse beneficiaries. These Canadian retirement accounts are generally fully taxable to the estate of the deceased. 

    Instead, taxes are payable on subsequent withdrawals from the inherited IRA or 401(k). This can provide an opportunity for tax deferral, as well as a potential decrease in the tax rate payable. A deceased Canadian taxpayer with a high income in the year of death may pay over 50% tax on their tax deferred retirement accounts. A non-spouse beneficiary with a low or moderate income may pay a significantly lower rate of tax. 

    There is a 10-year rule that allows withdrawals to be taken over up to 10 years following the account holder’s death. In the meantime, the account remains tax deferred in the US and Canada. 

    US withholding tax

    Withholding tax on US retirement account distributions to non-residents is typically 30%; however, a Canadian beneficiary can submit Form W-8BEN – Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding to the financial institution. This will allow them to withhold the lower 15% rate. 

    This is important because Canada will only allow a foreign tax credit for the 15% treaty rate. If a higher rate is withheld, a beneficiary may need to file a US tax return to get a refund from the Internal Revenue Service. 

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    Inherited Roth IRAs

    A Roth IRA is like a Canadian tax-free savings account (TFSA). A spouse beneficiary can take over the account or transfer it to their own Roth IRA.

    Roth IRAs are generally tax-free in the US and can also have tax-free status in Canada; however, an account holder must file an election with the Canada Revenue Agency (CRA) to maintain the tax-free Canadian status and ensure no new contributions are made. 

    A non-spouse inheriting has the same CRA election requirement, but has a different tax-free status opportunity. There is a 10-year rule for non-spouse beneficiaries, allowing only a limited tax-free growth period. 

    Roth IRA withdrawals are tax-free in the US and Canada. 

    Exceptions

    Disabled or chronically ill non-spouse beneficiaries may be exempt from the 10-year rule.

    The 10-year clock does not start ticking for minor beneficiaries until they attain the age of majority. 

    Summary

    IRA and 401(k) accounts work a little differently from Canadian RRSP, DC pension, and TFSA accounts on death. These US counterparts offer more favourable tax reduction opportunities.

    If you expect to leave a US account as an inheritance, or you are inheriting one of these accounts, it is important to understand the rules. They may impact how you draw down your assets in retirement and how you structure your estate.

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    Jason Heath, CFP

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  • Preparing taxes for someone who died – MoneySense

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    Contacting the CRA

    You should contact the government as soon as possible. This includes steps like cancelling a provincial health card, driver’s license, and applying for Canada Pension Plan (CPP) death and survivor benefits. 

    From a tax perspective, you should contact the CRA by phone or by mail. If you call CRA Individual Tax Enquiries at 1-800-959-8281, you should make sure you have on hand the person’s:

    • Date of death
    • Social Insurance Number (SIN)
    • Mailing address
    • Last tax return or notice of assessment

    You should report their date of death and stop any ongoing benefits that may need to be repaid. 

    There are several other government agencies you should also notify.

    Executors and next of kin

    To formally represent someone who has died with CRA, you can do so as a legal representative or name an authorized representative. A legal representative is generally the executor of the deceased’s estate named in their will. In Québec, this representative is called a liquidator.

    If you want to have online access to the CRA account of the deceased, you have to register for CRA’s Represent a Client service. You can do so with your CRA user ID and password, or with the Interac sign-in service to select a sign-in partner using your online banking.

    On the welcome page, select Add Account → Representative Account → Register with Represent a Client → Register Yourself.

    Once registered, you can submit documents using the Submit Documents service in Represent a Client. You need to provide a copy of the death certificate and a copy of the will, grant of probate, or letters of administration listing you as executor.

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    If the deceased had no will, you can fill out and submit Form RC552, Register as Representative for a Deceased Person.

    If you would prefer the old-fashioned way, you can also mail or fax these documents to the CRA without registering for Represent a Client. You should send them to the tax centre that serviced the deceased based on their mailing address.

    Income Tax Guide for Canadians

    Deadlines, tax tips and more

    Once you are authorized as the legal representative, you can appoint an authorized representative, like an accountant or lawyer. You do this from your own Represent a Client portal by entering the social insurance number of the deceased to access their online tax account. 

    Under the Related Services Section, select Authorized Representative(s), Authorize a New Representative, and follow the instructions. You must provide the representative’s RepID, CRA Business Number, or GroupID to appoint them.

    Tax returns

    You must file a final tax return up to the date of death reporting income for that year. There is also a deemed disposition of assets at death that may trigger tax on registered accounts like registered retirement savings plan (RRSPs) or registered retirement income funds (RRIFs). 

    Capital assets like non-registered investments, cottages, and rental properties may also be subject to capital gains tax. 

    Assets in other countries are also relevant, as Canadian residents are taxed on their worldwide income. 

    Certain elections may be available to defer tax on death, most notably a spousal rollover that allows assets to pass tax deferred to a surviving spouse or common law partner. 

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    Jason Heath, CFP

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  • Tax implications of shareholder loans – MoneySense

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    When your corporation owes you money

    If you personally pay for expenses on behalf of your company, it owes you for these personally paid corporate expenses. You can be reimbursed tax-free. 

    If you deposit money to your corporation, the same situation applies—that is, you are owed money back tax-free. This situation can occur if you have to top up your corporate bank account or deposit money to be used for a real estate down payment for the company. 

    The rest of this summary will focus on situations where you owe money to your corporation. 

    Clearing a loan with a bonus or dividends

    Some business owners take withdrawals over the course of the year from their corporation without running them through payroll. At year-end, you can address this by declaring a bonus with payroll withholding tax payable in January. This bonus has the identical tax treatment to salary, as both are reported as employment income on your T4 slip. 

    The other alternative is to declare a shareholder dividend. This has no withholding tax. The tax implications will instead be a combination of corporate and personal tax. This is because unlike a salary or bonus, dividends are not tax deductible for a corporation. Since a dividend is a distribution of after-tax corporate profits, the personal tax payable is lower than a salary or bonus. 

    However, the all-in tax is comparable, and in most cases, higher than paying a salary or bonus at most income levels in most provinces and territories.

    Income Tax Guide for Canadians

    Deadlines, tax tips and more

    Shareholder loan taxation

    If you want to loan money to yourself or a family member from your corporation, this is generally considered taxable income. The default assumption by the Canada Revenue Agency (CRA) is that loans are disguised as compensation unless a specific exemption applies. 

    The primary exception is if you repay the loan within one year after the corporation’s fiscal year end. For example, a loan outstanding on December 31, 2025 for a corporation with a calendar year-end needs to be repaid by December 31, 2026. If not, it will be considered taxable. 

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    The CRA does not like when you engage in a series of loans and repayments, either, and may treat the original loan as being taxable. So, be careful about back-to-back loans. 

    Employee loans

    There is a very narrow exemption for loans to employees for specific purposes like buying a work vehicle for employment duties, a home, or shares of the employer. It does not happen often in real life, and owner-managers who think they can loan money to themselves under this exception are probably out of luck. Specified employees who own 10% or more of a company cannot qualify. 

    Interest and principal benefits

    Business owners and their accountants often overlook the deemed interest benefit of a shareholder loan. There should be an income inclusion for the notional interest on the loan. The rate applied is CRA’s prescribed rate. As of Q1 2026, the rate used to calculate taxable benefits for employees and shareholders from interest-free and low-interest loans is 3%.

    If a loan is forgiven, the principal may be considered a taxable benefit to the owner-manager. The problem is that the corporation may not get a tax deduction, so there is an element of double taxation that may apply. 

    Inter-company loans

    If an owner-manager owns more than one corporation, they sometimes lend money between two companies. You may be able to loan money between two companies you own without triggering tax. 

    If you are loaning money between an operating company that is a going concern and an investment holding company, be careful about exposing shareholder loan assets owned by the operating business to company creditors. In some cases, it may be better to ensure that dividends can be paid from one company to another, either directly with the second company as a shareholder or indirectly using a trust. 

    Business owner takeaways

    Shareholder loans should usually be temporary as opposed to permanent. They can have unexpected tax implications, so proper planning is key. 

    Owner-managers should discuss shareholder loans with their tax accountant with a proactive planning-first approach rather than after year-end when filing their tax return.

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    Jason Heath, CFP

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  • Your TFSA reset for the new year – MoneySense

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    New TFSA contribution room

    Every Canadian resident aged 18 or older has $7,000 of new TFSA room as of January 1, 2026. This has been the annual maximum for three consecutive years now, but it could possibly rise in 2027 to $7,500. The 2027 TFSA limit will be confirmed in late 2026. 

    Since 2016, the annual maximum has risen in $500 increments based on adjustments tied to the Consumer Price Index (CPI), which measures annual inflation. 

    Cumulative TFSA limit

    Your cumulative TFSA limit is more important than the annual maximum. If you have missed contributions in the past, your TFSA room carries forward, with the yearly maximum added to your past room.

    If you were 18 years of age or older in 2009 and a resident in Canada all of those years, your cumulative TFSA room would be $109,000 as of January 1, 2026. That is: if you were born in 1991 or earlier, have been a resident in Canada since 2009, and have never contributed to a TFSA, you could have $109,000 of TFSA contribution room in 2026.

    2025 TFSA withdrawals

    TFSA withdrawals impact your TFSA room. If you took withdrawals last year, those withdrawals will be added to your TFSA limit for 2026 along with the annual maximum. 

    For example, if you withdrew $10,000 from your TFSA in 2025, you would have the $7,000 annual maximum plus another $10,000 of TFSA room, for a total of $17,000 of new TFSA room on January 1, 2026. 

    Confirming TFSA room with CRA

    You can confirm your TFSA room with the Canada Revenue Agency (CRA) by calling them or logging into your CRA My Account online. Note, however, that the data tends to be outdated. 

    TFSA contributions and withdrawals from the previous year are reported to CRA the following year, but may not be reflected until the spring or later. As a result, CRA’s TFSA records during the first half of the year may be inaccurate. This often leads to people inadvertently over-contributing to their TFSAs. 

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    What to do if you overcontribute

    If you contribute to your TFSA beyond your limit, you may be subject to penalties and interest. The penalties are 1% of the overcontribution each month. For example, a $10,000 overcontribution would have a $100 monthly penalty, or $1,200 for a full 12-month period. Interest is also applied to the penalties, and a penalty equal to 100% of any income or gains resulting from a deliberate overcontribution.

    Non-residents of Canada cannot contribute to their TFSAs while living abroad. So, non-resident TFSA contributions will also attract penalties and interest. 

    The CRA may send you an education letter about your TFSA overcontribution and waive penalties and interest, but you should not count on it. 

    The bottom line: TFSA overcontributions can be very costly, so try to avoid and correct them as soon as possible. 

    Compare the best TFSA rates in Canada

    If you do over-contribute, you should file a TFSA Return (Form RC243) by June 30 of the next calendar year. The CRA may show leniency by waiving or canceling all or part of the penalty tax. There are three conditions they will consider:

    1. If the tax arose because of a reasonable error.
    2. The extent to which the transaction(s) that lead to the tax also lead to another tax under the Income Tax Act.
    3. The extent to which withdrawals have been made from the TFSA to correct the error.

    If you disagree with a TFSA Notice of Assessment, you have 90 days to submit a Notice of Objection – Income Tax Act (Form T400A). This is a way to formally disagree with CRA’s assessment and request a second review. 

    What to do if… you have RRSP room

    If you have a high taxable income and RRSP contribution room, you may want to consider an RRSP contribution. You can withdraw money from your TFSA and use it to make an RRSP contribution. 

    The most beneficial situation to consider this is if your income is relatively high now, and you expect it to be relatively low in retirement. Especially if you can commit the money to invest for the long-term. 

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    Jason Heath, CFP

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  • Should I hold my house in a trust? – MoneySense

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    What is a trust?

    A trust is a legal arrangement where a person called the settlor transfers assets to a trustee to manage for beneficiaries, based on pre-determined rules. The assets are typically investments, real estate, or a business. 

    There are two main types of trusts: an “inter vivos” (living) trust, created while the settlor is alive, and a “testamentary” trust, which is written into a will, which takes effect after death. 

    Related reading: The difference between wills and living trusts

    Use of a trust 

    Trusts can have an income tax motivation, an estate planning benefit, or a practical use to hold assets for a vulnerable beneficiary. That vulnerability could be that the beneficiary is too young, like a minor child, or unable to manage the assets themselves, like someone with an intellectual disability or other impairment. Trusts are also sometimes used to maintain privacy. 

    The most common trust use case never comes to fruition. People with minor children commonly have wills that include testamentary trusts if they die before their kids attain the age of majority. But since most parents do not die while their kids are young, these trusts are never funded. 

    Another common use is for business owners who might sell their business someday. A trust can own shares of their company with family members, including minor children, as beneficiaries. In this way, when the trust sells shares of the company in the future, the trust can allocate the capital gain to multiple people. If the shares qualify for the lifetime capital gains exemption, a trust can multiply the exemptions available rather than having a capital gain taxable to the business owner alone. 

    Principal residence exemption

    Speaking of capital gains, in the context of your question, Silvana, it is important to consider what happens to your principal residence when you die. 

    The principal residence exemption (PRE) allows a taxpayer to claim a tax-free sale for a home that qualifies. You must have ordinarily lived in it during the years you want to claim the exemption. You can only designate one property as your principal residence for each year. However, it can apply to houses, condos, cottages, and similar vacation homes, so does not necessarily need to be the home you primarily live in, nor does it need to be the property where your mail goes. 

    Income Tax Guide for Canadians

    Deadlines, tax tips and more

    When someone dies, they are deemed to sell their assets. One exception is if they leave assets to their spouse or common-law partner, in which case, they can generally roll over tax-free or tax-deferred, depending on the asset.

    So, if you do not have a spouse or common-law partner, when you die, your executor can claim the principal residence exemption for your home so that no tax results, assuming the property qualifies. 

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    As such, a trust will probably not save you any income tax for your principal residence, Silvana. 

    Probate by province

    A trust may save you probate fees or estate administration tax though. This varies by province or territory. These costs are payable to validate a will and permit the executor to distribute assets to the beneficiaries. 

    The lowest probate fees are found in Manitoba and Québec, where there are no probate fees for most estates. Alberta also has relatively low fees, with a flat maximum of just $525 for estates over $250,000. 

    Ontario charges $14,250 on a $1 million estate (1.5% on the value over $50,000). For a $1 million estate in British Columbia, it would be $13,450 (1.4% on amounts over $50,000, plus a small fee on the first $50,000). 

    The wide range in fees means that where you live can have a significant impact on the cost of settling an estate subject to probate. Residents in high-fee jurisdictions may be more motivated to mitigate probate fees. 

    What should you do?

    A trust does not die when you do. So, a trust can be written to distribute assets, like your home, when you pass away. This would not form part of your estate, and would therefore avoid probate.

    In your case, Silvana, my concern is that you might only be trying to save, say, $15,000 on a $1 million estate, depending where you live. The legal fees to set up a trust might be $5,000 or more, and the going accounting costs to file a T3 Trust and Information Return and prepare annual trust minutes could be $1,000 to $2,000 annually, such that costs could easily eclipse the potential savings. 

    Trusts have a place, but there may not be a compelling reason to consider one for your principal residence unless the value is quite significant and you live in a high-probate province or territory. Personalized advice is important when complex tax and estate matters are at play. 

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    Jason Heath, CFP

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  • An update on trust tax return filings for 2025 – MoneySense

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    What is a trust?

    A trust is a legal arrangement whereby a settlor transfers assets to a trustee or trustees who hold and manage those assets for a beneficiary or beneficiaries. The trustee is responsible for making decisions for the trust and there may be very specific instructions for how the assets are to be administered, and why and when the assets can be used on behalf of or paid to a beneficiary. 

    The most common types of trusts for individuals are testamentary trusts and inter vivos trusts.

    • A testamentary trust comes into existence upon the death of an individual. A common example is if a parent or grandparent dies and leaves assets to a minor beneficiary who is too young to receive an inheritance directly. They may also be used for disabled or spendthrift beneficiaries, inheritors with substance abuse issues, or to provide asset protection from a family law perspective. 
    • Inter vivos trusts are living trusts set up during an individual’s life. A common example includes a trust to own small business shares to multiply the lifetime capital gains exemption for family members upon the sale of a company. Another example is when money is held in trust for a spouse, child, or grandchild for income splitting purposes. Seniors can also set up special trusts that can act as power of attorney equivalents and bypass probate and estate administration tax. 

    Related reading: Estate planning for singles—is a trust company the answer?

    What is a bare trust?

    A bare trust is a type of inter vivos trust that may not appear to be a trust to the untrained eye. Most trusts are created using legal documents like a will or a trust deed. A bare trust can arise simply based on the facts of a situation.

    According to the Canada Revenue Agency: 

    “In a bare trust, the separation of legal and beneficial ownership means that although trust property is registered under the trustee’s name, the beneficial owner has the rights or attributes of ownership in the property: (a) possession, (b) use, (c) risk and (d) control. Not all of these attributes will be present in every case, and some factors will be given more weight in certain cases. For example, a beneficial owner may not always have possession of the property.”

    So, in a case where one person owns an asset (legal ownership) but some or all of it belongs to someone else (beneficial ownership), this may be considered a bare trust. For example:

    • Someone may open an investment account for a child or grandchild, but only the parent or grandparent’s name is on the account. 
    • A parent may co-sign for their child’s mortgage so they can get approved by the bank and be registered as a 1% owner on the property title—even though the home is considered 100% that of the child.
    • A parent might add their child’s name onto their home’s title as a joint owner in an effort to avoid probate (despite the significant risks with this strategy) while the property technically remains 100% that of the parent.

    These are just a few examples of potential bare trusts.

    Compare the best TFSA rates in Canada

    Filing a T3 trust return

    Most trusts need to file an annual tax return called a T3 Trust Income Tax and Information Return. These returns must be filed within 90 days of the trust’s tax year-end, which is December 31 for most trusts. So, March 31 is generally the deadline for most trust returns (March 30 in leap years). If the deadline falls on a weekend, there is an extension to the next business day. 

    Income can be taxed in the trust or allocated to the beneficiaries. When the income is allocated to the beneficiaries, it must be paid to them, spent on their behalf, or documented as being owed to them in the future. 

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    A beneficiary’s income is reported on a T3 slip (Statement of Trust Income Allocations and Designations). A trust files a T3SUM (Summary of Trust Income Allocations and Designations) with all T3 slips for the trust.

    2025 tax filing requirements for trusts and bare trusts

    The deadline to file T3 returns with a December 31, 2025 year-end is March 31, 2026. 

    Trustees of bare trusts are once again wondering what their obligations are for 2025 and beyond. As it stands, some bare trusts have an exemption from filing, while others may have to file a return. 

    Exemptions may apply if:

    As it stands, the bare trust exemptions have not yet been enacted into law. This ambiguity makes planning difficult for taxpayers and tax professionals alike.

    That said, CRA recently clarified with CPA Canada’s director of tax, Ryan Minor, that they will “extend the bare trust administrative filing waiver if legislative changes are not enacted well in advance of the filing deadline.”

    It was originally proposed by the Ministry of Finance that bare trusts would have filing requirements for the 2023 tax year; however, last-minute changes meant they were not required to file for either 2023 or 2024.

    If CRA makes a direct request to file, a bare trust is required to file, however unlikely. And barring legislative progress on bare trusts, it may be that there is a third exemption year for bare trust tax return filings.

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  • What happens if you sell real estate to family for a dollar? – MoneySense

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    Fixing a past tax mistake

    If you discover a mistake, or you want to come forward with an omission, there is a path to do so with the Canada Revenue Agency (CRA). It is called the Voluntary Disclosure Program (VDP). According to CRA: 

    “The Voluntary Disclosures Program (VDP) is an opportunity for taxpayers to inform the Canada Revenue Agency (CRA) about and correct errors or omissions in their tax obligations. If relief is provided by the CRA under the VDP, a taxpayer may receive some penalty and interest relief, and will not be referred for criminal prosecution. Any taxes owing will still have to be paid by the taxpayer in full.”

    Changes were introduced for the VDP on October 1, 2025. The application form, Form RC199, Voluntary Disclosures Program (VDP) Application, was simplified to make it easier to file. The program has also become less restrictive. CRA has begun a program of sending education letters about unreported income or ineligible expenses to ensure compliance that does not prevent a taxpayer from applying. Prior to the changes, a VDP needed to be unprompted. 

    If you are under audit or were uncompliant in the past in an egregious manner, you may be restricted from a VDP application. 

    There are two types of relief that the CRA provides under the VDP:

    • General relief normally applies to unprompted applications. These applications will receive 75% relief of the applicable interest and 100% relief of the applicable penalties.
    • Partial relief normally applies to prompted applications. These applications will receive 25% relief of the applicable interest and up to 100% relief of the applicable penalties.

    Principal residence exemption for a cottage

    The good news for your mother’s situation, Susan, is that there was probably no tax payable on the transfer of her cottage to you. Often, a cottage is subject to capital gains tax when it is sold, transferred, or upon the death of the second spouse—but not always.

    A cottage can qualify for the principal residence exemption (PRE). The PRE is available to use for any property you ordinarily occupy, with no limit on the number of days. It does not matter where you primarily live, nor where your mailing address is registered. 

    Since the only real estate your parents ever owned was this cottage, Susan, the property was likely non-taxable, whether it was sold to you for $1 or for fair market value by your mother. 

    Of note is that since the 2016 tax year, there is a requirement to report the disposition of a principal residence on your tax return in order for it to qualify. Previously, it was not a requirement to report a property that qualified as your principal residence for every year that you owned it.

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    Selling or transferring real estate for less than fair market value

    It is also worth mentioning that selling a cottage that does not qualify for the principal residence exemption for less than the fair market value  is not a way to avoid tax, nor is gifting it for no consideration. A sale or transfer to a non-arm’s length party—like a child—is considered a sale at the fair market value with tax payable accordingly by the seller or transferor. 

    For the child who acquires the property, there can also be an element of double taxation. If their acquisition cost is below the fair market value, they could end up paying tax unnecessarily on the difference between the acquisition cost and the fair market value at the time of the transfer when they dispose of the property in the future. 

    I think this is what you are worried about, Susan. But the good news is the transfer to you may be considered to have taken place at the fair market value, even though you only paid $1. CRA addressed this in a tax interpretation in 2019 (24 January 2019 2018-0773301E5):

    “In certain circumstances, the Canada Revenue Agency may be willing to accept that the transfer of property between non-arm’s length parties for the nominal amount of $1 could be considered a gift. For example, if the agreement governing the transfer provides for consideration of $1 merely to ensure that the agreement is legally binding, the CRA may consider the transfer to be a gift.”

    This may be the case in your situation, Susan. They also say:

    “Paragraph 69(1)(c) of the Act will apply where a taxpayer (the recipient) has acquired property by way of “gift, bequest or inheritance.” If paragraph 69(1)(c) applies, the recipient is deemed to acquire the property at FMV [fair market value].”

    So, you may be in the clear. If in doubt, you could contact CRA to request a generic Technical Interpretation or a more formal Income Tax Ruling specific to your situation. 

    The takeaway: For anyone considering a transfer or sale of real estate to a family member, professional advice is a must.

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    About Jason Heath, CFP


    About Jason Heath, CFP

    Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.

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    Jason Heath, CFP

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  • How to bridge the gap until an inheritance – MoneySense

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    CPP/OAS strategy without other pensions

    You can begin your Canada Pension Plan (CPP) retirement pension as early as age 60 or defer it as late as age 70. For each month you defer it after age 60, the pension rises.

    If you start your pension at 60 and continue to work, you must continue to contribute to the pension until at least age 65. This will generally increase your pension, with an adjustment each year, but not as much as deferring it.

    Since you already started your CPP, there is not much of a strategy there, Esther. But for others reading along, a healthy senior who expects to live well into their 80s should strongly consider deferring the start of their pension. They will receive more cumulative CPP dollars if they live to their late 70s. Even after accounting for the time value of money from drawing down other investments, or not being able to receive and invest the payments, someone living to their mid-80s and beyond may be better off financially. 

    There is also the benefit of having more guaranteed income that is simple and indexed to inflation, providing cost of living and longevity protection—especially for someone without a defined benefit pension plan. 

    Although you plan to start your Old Age Security (OAS) at age 65, Esther, you may want to think twice about this for two reasons:

    1. The same logic as CPP applies. You can defer your OAS as late as age 70 and it, too, rises for each month of deferral. If you are healthy and expect an average or longer than average life expectancy, deferral may give you more lifetime retirement income, despite the temptation to have more cash flow today. 
    2. There is an OAS pension recovery tax if your income exceeds about $95,000 in 2026. If you are still working and receiving both CPP and OAS, you want to be careful about losing some of the OAS pension you are hoping to begin. This means-tested clawback of OAS is 15 cents on the dollar above that threshold, causing an effective tax rate of 43% to 52% and rising at $95,000 depending on your province or territory of residence. 

    Given your expected low income in retirement, it could be a costly decision to start OAS. There is also a low-income supplement called Guaranteed Income Supplement (GIS) that an OAS pensioner with a modest income may qualify for that could factor into your future income planning, Esther. 

    Compare the best RRSP rates in Canada

    Travelling in retirement

    Your plan to travel while you are young and healthy is an important reason not to work too long or wait to do things too late into your retirement. There needs to be a fine balance between saving for tomorrow and living for today—it is one of the biggest risks of retirement planning. 

    Conventional retirement planning methods focus on minimizing the risk of running out of money before you are 100, but this can also maximize the risk that you miss out on life experiences.

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    Counting on an inheritance

    You must be careful budgeting for an inheritance that could be lower than expected, and may come later than anticipated. It is a risky part of retirement planning even if you have full visibility about a parent’s finances. 

    The substantial nature of the inheritance you foresee, Esther, is an important factor in your own retirement planning. Given that you are 64, I assume your mother is well into her 80s or beyond. 

    In your case, the key to bridging the gap until that inheritance is definitely real estate. 

    Real estate strategy in retirement

    The benefit of owning vs. renting from a financial perspective is overblown, in my opinion. Until recently, real estate prices appreciated at an extraordinary pace in many Canadian cities, leading some to believe it is the key to wealth creation.

    Real estate should not be an investment, unless it is a rental property earning rental income. A principal residence should probably grow at slightly above the rate of inflation, in line with wage growth. Perhaps this is the reason prices have flatlined or declined recently. Although interest rates have risen, they have only gone up to normal levels, not extraordinarily high rates. 

    A discussion of real estate price appreciation often ignores property tax, maintenance, renovations, and interest costs, as well. 

    All that to say that selling and renting would not be a failure in this financial planner’s opinion, Esther. But you would want to consider an apartment or seniors’ community where you could live as long as you wanted, as opposed to a condo with a landlord that has risk with regards to being a long-term residence. Being forced to move in your 70s or 80s on 90 days’ notice may not be a good risk to take. 

    One solution you may not have considered is borrowing against your debt-free condo. You can apply for a mortgage or home-equity line of credit based on your income and qualifying ratios. A line of credit may be more flexible than a lump-sum mortgage deposited to your bank account, because you can withdraw funds as needed and pay interest as you borrow. 

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    Jason Heath, CFP

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  • What is the Canada Pension Plan death benefit? – MoneySense

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    There are several other programs that CPP contributors and family members are eligible for—including the CPP death benefit, Sam. 

    A Quebec resident may be entitled to Quebec Pension Plan (QPP) benefits. The CPP and QPP plans have coordination agreements since some Canadians contribute to both plans during their career.

    Other CPP/QPP programs

    Some of the other CPP/QPP benefits include: 

    • Disability benefits. These benefits are payable to eligible contributors who cannot work due to a disability. 
    • Survivor’s pension. If your spouse or common-law partner dies, you may be eligible to receive a survivor’s pension. 
    • Children’s benefits. A disabled or deceased contributor’s children under the age of 25 may be eligible to receive a monthly benefit. 

    What is the CPP/QPP death benefit?

    The CPP/QPP death benefit is payable to the estate or other eligible applicants on behalf of a deceased contributor. 

    The CPP death benefit is a one-time payment from Service Canada. Qualification requires one of the following minimum criteria to be met:

    • The deceased must have made contributions during at least one-third of the calendar years in their contributory period for the base CPP, but no less than 3 calendar years
    • The deceased must have contributed for at least 10 calendar years

    If the deceased was receiving a QPP retirement pension, last worked and contributed to the QPP, or lived in Quebec at the time of their death, an applicant must apply to Retraite Québec for a QPP death benefit instead of Service Canada for a CPP death benefit. 

    How much is the CPP/QPP death benefit?

    For many years, the maximum CPP death benefit was $2,500, but beginning January 1, 2025, there was an increase to the death benefit. It now consists of a basic amount of $2,500 and a possible top-up of $2,500, for a maximum $5,000 benefit. 

    The top-up is payable if the deceased met both of the following conditions:

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    • Had never received a CPP or QPP benefit based on their own contributions
    • Had no spouse or common-law partner eligible for a CPP survivor’s pension

    These amounts may decrease if a social security agreement is needed to meet eligibility for people who have lived outside of Canada and contributed to foreign social security plans.

    The maximum QPP death benefit remains at $2,500. 

    How to apply for the CPP/QPP death benefit

    You can apply online by signing into a My Service Canada Account (MSCA) and completing the online CPP Death Benefit form. You can also complete and submit the Application for CPP Death Benefit (form ISP1200) by mailing it to Service Canada. Quebec applicants can also apply online or by mail. 

    If there is an estate, the executor named in the will or the administrator appointed by the court must apply. 

    If there is no estate, or if the executor has not applied, there is an order of priority for applicants:

    1. The person (or institution) who paid for the deceased’s funeral expenses
    2. The surviving spouse or common-law partner
    3. The next-of-kin of the deceased.

    It generally takes between 6 and 12 weeks for the payment to be issued following receipt of the application by Service Canada or Retraite Québec. You should apply as soon as possible following a death. 

    Is the CPP/QPP death benefit taxable?

    The CPP/QPP death benefit is taxable. The income is reported on a T4A(P) tax slip, called Statement of Canada Pension Plan Benefits. QPP death benefits are reported on RL-2 slips for provincial tax purposes. 

    The death benefit payment may be reported by the estate of the deceased on a T3 Trust Income Tax and Information Return (Trust Income Tax Return TP-646-V in Quebec). If it is paid or made payable to a beneficiary, they report it on their T1 Income Tax and Benefit Return (TP1 Income Tax Return in Quebec). 

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    Jason Heath, CFP

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  • Should you sell stocks you inherit? – MoneySense

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    How are stocks taxed when you inherit them? 

    When a spouse or common law partner is a beneficiary, assets can be transferred to them on a tax deferred basis. So, for this section, we will assume a non-spouse beneficiary. 

    For non-spouse beneficiaries, inheriting stocks usually triggers tax consequences at the estate level, not for the individual. The estate settles any taxes owed before distributing the after-tax proceeds to the heirs.

    A registered account like a registered retirement savings plan (RRSP) or registered retirement income fund (RRIF) is fully taxable based on the account value. The market value of the account on the date of death is considered income to the deceased. The tax is payable on their final tax return. Income or growth after that is taxable to the beneficiary:

    • If the estate is named as beneficiary, it will pay the incremental tax.
    • If an individual beneficiary is named, they will pay the tax on the post-death income or growth accrual. 

    A tax-free savings account (TFSA) is tax-free at death, but likewise, income or growth after that is taxable to the beneficiary (estate or individual).

    A non-registered account is subject to capital gains tax on death, with the market value minus the adjusted cost base of each stock resulting in a capital gain (or loss, if trading at a lower value). Once again, subsequent income is taxable. 

    Since a non-registered account cannot have a beneficiary, the resulting tax is borne by the estate. If a stock is sold for a capital gain, post-death growth is also taxable. But if a stock is transferred to a beneficiary as part of their inheritance without selling it, that does not trigger tax on the post-death growth. Instead, the recipient’s cost base for their future capital gains purposes would be the market value at the time of the death. 

    Compare the best TFSA rates in Canada

    Do you have to sell stocks you inherit? 

    Stocks are often sold to pay tax and estate costs, with the net cash proceeds transferred to the beneficiaries. An executor may sell all of the estate assets regardless to reduce the risk of the market values declining to prevent being responsible for the estate losing money. 

    However, the executor of the estate can choose to transfer assets in kind—or as is—to a beneficiary. This can include stocks that were owned previously by the deceased. 

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    As a result, a beneficiary can end up with a stock inheritance. 

    What to do with an inheritance of stocks

    The question then becomes whether to keep stocks if you can sell and transfer cash, or to transfer stocks in kind.

    From my perspective, inheriting an asset is unintentional. It is one thing to buy Canadian Pacific Railway shares on purpose but keeping them just because someone else bought them is questionable. 

    It is like inheriting someone’s clothes. If they fit and they are nice, maybe you will keep them. But if they are the wrong size and out-of-date, why wear them? Stocks need to be the right fit for your portfolio, and you should be careful about keeping them simply because you inherit them. 

    Should you keep the investments at the same financial institution?

    Some beneficiaries like to maintain continuity. This can include keeping the same investments in the same place. In some cases, with an investment advisor, and in other cases, in a self-directed account. 

    An advisor is obviously motivated to encourage the beneficiary to keep the account with them. If there is an existing relationship, this can be a good reason to maintain continuity—but if there is not, an investor should not just keep the account as is just because. They should decide consciously to maintain the relationship and interview the advisor just like they would if they were selecting a brand-new one. 

    And if the account is a self-directed account and the beneficiary has little to no investing experience, they should be careful about trying to step into the shoes of the deceased. Not everyone is meant to be a do-it-yourself investor. You are not obligated to make the same financial decisions as someone who left you a stock inheritance. 

    Compare the best RRSP rates in Canada

    Tax implications of selling stocks after you inherit them

    When you receive an inheritance of stocks, the market value upon the death of the deceased was already taxed. If the stocks were held in an RRSP, RRIF, or TFSA, the appreciation in the stocks until the time of transfer would also be taxed to the estate or beneficiary.

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    Jason Heath, CFP

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  • Can you move income back and forth between spouses? – MoneySense

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    Let’s look at reporting investment income and capital gains, and which spouse should report the capital gain on a rental property. 

    Reporting investment income

    When you earn investment income like interest or dividends in a taxable investment account, or rental income from a rental property, you need to report it on your tax return.

    Taxpayers sometimes mistakenly think they can minimize the tax payable by choosing which spouse’s tax return to report the income on, and in some cases, changing the allocation from year to year. Unfortunately, it does not work that way. The income must be reported by the spouse who earned it. If the asset is truly joint, each taxpayer would report their proportionate share of the income on their tax return.

    Reporting capital gains

    Like other sources of income, capital gains have to be reported by the person who earned the income. If the capital gain is on a property held in your name only, Zlatko, you cannot report half the capital gain on your spouse’s tax return to reduce tax, nor can you use their registered retirement savings plan (RRSP) room to reduce the taxable income.  

    Presumably, you have been reporting 100% of the rental income on your tax return annually, so to change that reporting suddenly when there is a big income inclusion from the capital gain is not an option. If you were reporting the income incorrectly all along, and it should always have been reported jointly, you should go back and adjust your tax return and your spouse’s tax return. Interest would apply on your spouse’s balance owing, and you would receive a refund. But you should have a good reason for the oversight, as the Canada Revenue Agency (CRA) does not like this sort of “convenient” retroactive tax planning.

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    Legal versus beneficial ownership

    You mentioned that the property is in your name. For tax purposes, there is always a distinction between legal ownership and beneficial ownership. 

    An asset can be legally owned by one spouse but beneficially belong in part or in whole by the other. If you both contributed equally to the down payment for the property, for example, you should report the capital gain equally, despite the property being held in your name alone, Zlatko.

    However, if this was inconsistent with the past reporting of the rental income, that means you may have been reporting the property incorrectly all along. It does not sound like this is the case for you.

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    Spousal attribution

    On the other hand, if your spouse gave you the money for the down payment, so that the property technically belongs to them beneficially, the income may be subject to attribution. If both spouses have contributed differing amounts at different times, it can be more complicated to determine beneficial ownership for tax purposes. It bears mentioning that spouses can own an asset in a proportion other than 50/50 as a result.

    Spousal attribution is when income is earned by one spouse, but because of the source of the funds that generated the income, that income gets taxed back to the contributing spouse.

    If your spouse actually bought this rental property in your name to try to reduce tax, it may be that the capital gain and all the past rental income should technically be taxed to them, Zlatko. 

    Transferring assets between spouses

    Sometimes, people ask me about transferring an asset to their spouse, or adding their spouse’s name to the property prior to selling it. A transaction like this runs into the same spousal attribution issue, where an asset you own, transferred to your spouse, will have resulting income taxed back to you.

    As a result, you cannot transfer partial ownership to your spouse in an attempt at last-minute tax planning.

    Tax reduction options

    You brought up contributing to your and your spouse’s RRSPs, Zlatko. This is definitely one way to reduce your taxable income in the year you sell the property. If the capital gain is large, or your income is relatively high besides the capital gain, you may be able to offset about $2 of capital gains with every dollar contributed to your RRSP.

    This is because only half of a capital gain is taxable. So, you would only need a $50,000 RRSP contribution to fully offset a $100,000 capital gain.

    If you can control your income in the year of the capital gain by reducing or avoiding other sources of income, you may be able to mitigate some of the tax payable on the capital gain, as well. For example, if you are a business owner who can lower your salary or dividends, or you can defer other capital gains or registered account withdrawals, or you can claim or accelerate other tax deductions.

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    Jason Heath, CFP

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  • Annuity vs. GIC: What makes sense for retiring? – MoneySense

    Annuity vs. GIC: What makes sense for retiring? – MoneySense

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    As you know, of course, annuities and GICs are not the same thing. An annuity provides a guaranteed income for life, or a set time period, and it can be purchased from insurance companies, agents and brokers. And a GIC is primarily a savings vehicle, which can be bought from banks, trust companies, credit unions and investment firms.

    In most cases, purchasing an annuity means exchanging your capital—a lump sum of money—for a lifetime payment that is similar to a pension. It’s a fixed, guaranteed income for life, with no more worries about interest rates, stock market crashes, running out of money, etc.

    On the other hand, purchasing an annuity means making a long-term commitment to an unknown future. And you will no longer have access to your original capital.

    Consider this example: If you want to buy a new car, you can’t go to the insurance company and ask for a little extra money. It’s not your money anymore.

    I’m guessing you’re thinking about GICs as an alternative because you’re aware of the longer-term risks associated with an annuity, and you may want to maintain control and flexibility over your money.

    A GIC can give you a guaranteed income over the length of the term and control of your capital; however, there is no guarantee on future interest rates or a lifetime income. You may also find it difficult to draw a monthly income from a GIC portfolio. This will prompt you to create a GIC ladder with different maturity dates so there is cash available when needed. The laddered approach may have an overall return that is less than the five-year return you are using to compare to an annuity.

    Think about the different ways you—and the world for that matter—may change in the next 25 years. Look at interest rates, inflation, your lifestyle and spending habits, and so on. Inflation is likely the biggest risk you’ll face when purchasing a life annuity.

    If you purchase a $100,000 annuity, what other financial resources do you now have? What will be coming to you in the future? What can you use to deal with any changes in your life? It’s important for you to know the answers to these questions.

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    Allan Norman, MSc, CFP, CIM

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  • Financial hardship withdrawal exceptions and increasing income in retirement – MoneySense

    Financial hardship withdrawal exceptions and increasing income in retirement – MoneySense

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    First, remember the money in your locked-in retirement account (LIRA) or LIF is money intended to provide you with a lifetime income. Upon leaving your employer, your pension savings were converted into a LIRA, which again is intended to last you your lifetime.        

    With most LIRAs, you can start making withdrawals at age 55. That’s done by converting a LIRA to a LIF. In some ways, LIRAs and LIFs are similar to registered retirement savings plans (RRSPs) or registered retirement income funds (RRIFs). Except with a LIRA, you can’t withdraw money like you can from an RRSP. And with a LIF, you are limited to a maximum withdrawal amount, whereas with a RRIF, you can withdraw as much money as you like.

    Not all LIRAs and LIFs are the same 

    There are federally and provincially regulated LIRAs and LIFs. And, when it comes to withdrawals, exceptions and unlocking privileges, you need to check if your LIRA and/or LIF is a federal or provincial plan, as they each have their own set of rules. If you’re not sure where your LIRA and/or LIF is registered, call the financial institution holding your account.

    Once you know how your LIRA and/or LIF account is registered, go to that jurisdiction’s website to review its unlocking rules. The best thing to do is to download the unlocking application form and give it a read. Typically, it’s not that difficult to understand.

    CM, for you, go to the B.C. Financial Services Authority website and download the application. On the site, you will see you can withdraw additional monies from your LIF, over the maximum withdrawal limit, if you are facing financial hardship. You mentioned you don’t qualify, but let’s review the financial hardship exceptions, just in case.

    Financial hardship withdrawal exceptions for LIFs in B.C.

    To qualify for financial hardship for a LIF in B.C., you must meet one or more of the following criteria:

    1. Your taxable income is less than $45,667.
    2. You have mortgage arrears
    3. You are facing eviction of a rented home, and you need the funds to secure a new principal residence or first month’s rent.
    4. You have medical costs.

    Other ways to unlock your LIF in B.C.

    In most cases, a person will unlock their LIF in one of the following ways instead of applying for financial hardship.

    1. At any age, a LIRA and/or LIF with an account balance of less than 20% of the year’s maximum pensionable earnings (YMPE), $68,500, can be unlocked. In 2024, the YMPE is $68,500, and works out to $13,700.00;
    2. Once you turn 65, you can unlock your LIRA and LIF, if they contain less than 40% of the YMPE, which is $27,400 for 2024;  
    3. Permanent departure from Canada;
    4. Or, your life expectancy has been shortened.

    No matter which exception you qualify for, you must apply. The financial institution holding your investment account can provide you with the necessary forms.

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    Allan Norman, MSc, CFP, CIM

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  • Can you save on taxes by owning an investment account with your child? – MoneySense

    Can you save on taxes by owning an investment account with your child? – MoneySense

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    When you give cash or assets to a family member to invest, there may be attribution of that income back to you. Attribution causes income to be taxed on the original taxpayer’s income tax return. Attribution applies:

    • Between spouses. So, if a high-income spouse gives money to their low-income spouse to invest, with the goal of reducing their tax payable, the attribution rules apply.
    • To some income between a parent and a minor child. Interest and dividends are taxable back to the parent, but capital gains are taxable to the child. So, you can accomplish some income splitting with a minor child.

    Attribution does not apply between a parent and an adult child, unless the funds are loaned to the adult child at a low interest rate or at no interest rate. In the case of a low- or no-interest loan, where it seems the intention is not to truly gift the money, but to reduce tax payable on the income for a period of time, there is attribution. As with a minor child, it applies to interest and dividends, but not capital gains.

    Can you avoid capital gains tax by gifting an asset?

    When an asset is outright gifted to a child, there’s a deemed disposition. The asset is considered to be sold to the child at the fair market value, and any accrued capital gains become taxable. So, you cannot avoid tax by gifting an asset, like a cottage, for one dollar, for example.

    It does not appear you have made a gift to your son, Jing. You intend to continue to report the income. So, there is no capital gain and there is no attribution. You should just continue to report the income on your tax return.

    Legal ownership vs beneficial ownership

    This is a case where legal ownership—whose name is on an asset—does not match the beneficial ownership—who technically owns the asset. Legally, the account is joint. Beneficially, the account belongs to you.

    This creates tax consequences for you that may be unintended. Trust rules have changed for 2023 and future tax years. If you have an account, like your brokerage account, Jing, where the legal and beneficial ownership are different, you need to file a special tax return.

    New trust reporting rules for 2023

    A T3 Trust Income Tax and Information Return is used by trusts to report trust income as well as information about the settlor, trustees and beneficiaries of the trust. Although you may not have established a trust with a lawyer, or even consider this joint account to be a trust, the Canada Revenue Agency (CRA) considers it a trust.

    The CRA makes an exception for “trusts that hold less than $50,000 in assets throughout the taxation year (provided that the holdings are confined to deposits, government debt obligations and listed securities).”

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    Jason Heath, CFP

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  • Tax implications of making transfers between registered accounts

    Tax implications of making transfers between registered accounts

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    They’re locked in because they are intended to provide income throughout your retirement, so you are limited in how much you can withdraw each year from a resulting LIRA, subject to annual maximums based on your age. Provinces and territories determine the earliest age of withdrawals, which can be as young as 50, but more commonly not until age 55.

    When can you withdraw from a locked-in account in Canada?

    There are exceptions when a locked-in account can be withdrawn, either partially or entirely. Exceptions include extreme financial hardship or a shortened life expectancy; some provinces also allow unlocking based on your age.

    In Ontario, you can access up to 50% of the balance of your LIRA by transferring it into a life income fund (LIF). Within 60 days of the transfer to the LIF, you can withdraw up to 50% of that balance, or transfer some or all of it to a registered retirement savings plan (RRSP). The benefit of transferring to your RRSP is that it can happen on a tax-deferred basis, and the subsequent withdrawals are not subject to the annual LIF maximums.

    What happens when you withdraw from a LIF

    When you take a withdrawal from a LIF, Suzanne, that is reported on a T4RIF slip for tax purposes. Since you transferred 50% of your LIF to your RRSP, it should be reported in box 16 as a “taxable amount,” as well as box 24 as an “excess amount transferred to RRSP.” This will increase your RRSP contribution room for the year by the amount of the transfer. When the transfer is made within 60 days of opening the LIF, which it sounds like that is what happened for you, given the way they reported it on your slip, you can make the RRSP contribution without impacting your available RRSP room, Suzanne.

    The financial institution was right to issue you an RRSP contribution receipt because you must report the income from the T4RIF slip, and then deduct the deposit to the RRSP as a contribution—it’s a wash in this case.

    If you took a withdrawal from your LIF and transferred only some of it to an RRSP, the RRSP contribution and allowable deduction would be less than the full withdrawal. And, you would have an income inclusion and resulting tax liability.

    Transfers between registered accounts: Do you pay tax?

    Generally, transfers between registered accounts like RRSPs, LIRAs, registered retirement income funds (RRIF)s, LIFs, registered education savings plans (RESPs) and tax-free savings accounts (TFSAs) do not have tax implications. The funds transfer over on a tax-free (for TFSAs) or tax-deferred (for other accounts) basis.

    Some Canadians may want to access locked-in funds because they need the money immediately. Other Canadians may just want to minimize the amount of money that is subject to maximum withdrawal restrictions.

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    Jason Heath, CFP

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