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Tag: division of assets

  • You have to sell a cemetery plot—will you owe capital gains tax? – MoneySense

    You have to sell a cemetery plot—will you owe capital gains tax? – MoneySense

    Many non-financial assets depreciate in value. Cars, furniture and other such assets tend to be worth less over time, and they are generally not subject to capital gains tax. However, there may be exceptions, such as collector cars, jewellery, artwork or antiques. You may have to report a capital gain on the sale of personal-use property that has increased in value.

    To calculate the capital gain—or loss, as the case may be—there are three rules:

    1. If the adjusted cost base (ACB) is less than $1,000, the ACB is considered to be $1,000.
    2. If the sale proceeds are less than $1,000, the proceeds are considered to be $1,000.
    3. If both are less than $1,000, there is nothing to report.

    Capital gains on personal-use property

    As a result of these three rules, personal-use assets are usually a non-issue for taxes. In rare instances where a taxpayer profits, the numbers need to be into the thousands to matter.

    Interestingly, when someone buys a burial plot, they actually buy the right to bury, or inter, someone in the plot. That is, the buyer becomes an “interment rights holder,” but they do not own the land itself. Despite this, the empty cemetery plot has value for someone else who will inherit it or buy it.

    When the deceased passed away, they were deemed to sell all of their assets, Brian. This includes the cemetery plot. So, capital gains tax would be payable on their death for any appreciation in value.

    If you, as executor, sell the plot shortly thereafter, the value will likely be similar. If there’s a profit between the time of their death and the sale of the plot, this could give rise to a capital gain for the estate.

    Selling a cemetery plot as part of an estate

    It bears mentioning, Brian, the cemetery plot may have some restrictions related to its sale. Keep in mind the land is not owned. The owner holds the right to be buried there. And the cemetery may or may not permit the private sale of interment rights.

    Since the plot has a value, it may also be subject to probate or estate administration tax, just like any other asset passing through the estate of the deceased. You should speak to the cemetery, Brian, about the rules around selling the rights to the plot. And consider the tax and probate implications of the individual’s death and the subsequent sale of their vacant cemetery plot.

    Jason Heath, CFP

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  • Are GICs worth it for Canadian retirees? – MoneySense

    Are GICs worth it for Canadian retirees? – MoneySense

    In other words, during the near-zero interest rates that prevailed until recently, investors wanting real inflation-adjusted returns had almost no choice but to embrace stocks. (Read more about TINA and other investing acronyms).  

    GICs have a place in locking in some real-returns, especially if inflation tracks down further. But Raina says investing in bonds offer opportunities to lock in healthy coupon returns, with the prospect of higher capital appreciation opportunities if interest rates fall further, since bonds currently trade at a discount. The risk is the unknown: when interest rates will start falling. Based on what the Bank of Canada (BoC) announced in the fall, Raina feels that could be some time in 2024. (On Dec. 6, the BoC announced it was holding its target for the overnight rate at 5%, with the bank rate at 5.25% and deposit rate at 5%.)

    CFA Anita Bruinsma, of Clarity Personal Finance, is more enthusiastic about GICs for retirees in Canada. “I love GICs right now,” she says. “It’s a great time to use GICs.” For clients who need a portion of their money within the next three years, she says, “GICs are the best place for that money as long as they know they won’t need the money before maturity.”

    Other advisors may argue bond funds could have good returns in the coming years, if rates decline. However, “I would never make a bet either way,” Bruinsma says, “I think retirees looking for a balanced portfolio should still use bond ETFs and not entirely replace the bond component with GICs. However, I do think that allocating a portion of the bond slice to GICs would be a good idea, especially for more nervous/conservative people.” For Bruinsma’s clients with a medium-term time horizon, she recommends laddering GICs so they can be reinvested every year at whatever rates then prevail. 

    GICs vs HISAs

    An alternative is the HISA ETFs. (HISA is the high-interest savings accounts Small referred to above). HISA ETFs are paying a slightly lower yield than GICs and also do not guarantee the yield. “I also like this product but GICs win for the ability to lock in the rate,” says Bruinsma.

    When investing in a GIC may not make sense

    Another consideration is that GICs are relatively illiquid if you lock in your money for three, four or five years or any other term. “If you are uncertain if you will need those funds in the near future, you can look at a high interest savings account ETF like Horizon’s CASH,” says Matthew Ardrey, wealth advisor with Toronto-based TriDelta Financial. “This ETF is currently yielding 5.40% gross—less a 0.11% MER.”

    Apart from inflation, taxation is another reason for not being too overweight in GICs, especially in taxable portfolios. Even though GIC yields are now roughly similar to “bond-equivalent” dividend stocks (typically found in Canadian bank stocks, utilities and telcos), the latter are taxed less than interest income in non-registered accounts because of the dividend tax credit. In Ontario, dividend income is taxed at 39.34% versus 53.53% for interest income at the top rate in Ontario, according to Ardrey. This is why, personally, I still prefer locating GICs in TFSAs and registered retirement plans (RRSPs). 

    When GICs are right for retirees

    Ardrey says GICs can be a valuable diversifier when it’s difficult to find strong returns in both the stock and bond markets. “This is especially true for income investors who would often have more of a focus on dividend stocks.” Using iShares ETFs as market proxies, Ardrey cites the return of XDV as -0.54% YTD and XBB is 1.52% year to date (YTD). “Beside those numbers a 5%-plus return looks very attractive.”

    Jonathan Chevreau

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  • How to divide the assets of an estate between beneficiaries – MoneySense

    How to divide the assets of an estate between beneficiaries – MoneySense

    First, it bears mentioning that wills typically provide discretion to the trustees to sell, call in or convert into cash any part of an estate in their absolute discretion. The trustees may also have the ability to postpone a sale if they think it’s best. For example, that could be the case if market conditions made it inadvisable to immediately sell a real estate property, business assets or investments.

    An estate trustee typically has the discretion to distribute specific assets to beneficiaries as part of their share of an estate. In other words, if one beneficiary wanted a real estate property, they may elect to receive a smaller share of the rest of the estate, like cash proceeds from bank accounts or from selling other assets. If the real estate value was more than their share of the estate, they may be able to buy the asset from the estate, paying the incremental amount over and above the value of their share.

    It sounds like your parents’ estate has already been distributed to you, though, if your own names are now on these properties and accounts. As such, you should have free rein to do as you wish.

    Should you hold on to assets jointly or sell them?

    In my experience, it’s more common to sell all the assets and distribute the cash that remains (after paying taxes and estate costs) to the beneficiaries. So, your parents’ wishes may not have been so literal as to continue to hold all of their assets jointly.

    Real estate could be distributed to multiple beneficiaries directly rather than sold if the property holds sentimental value, such as a family cottage or farm. This would be less likely with estates like your parents’, which includes five properties, at least a few of which are presumably rental properties.

    There’s no tax advantage to continuing to hold the properties or the accounts, either. For a couple, tax is payable on the second death.

    Should you hold property as joints tenants or tenants in common?

    If you and your siblings want to continue to hold the real estate as investments, Lisa, you could do so jointly. You could own the properties as joint tenants with the right of survivorship, in which case the surviving two siblings would inherit the property upon the first death. This would be uncommon for siblings, though.

    You could alternatively own the properties as joint tenants in common, which would give you control of the asset even upon your death. You could then leave your share to your spouse or children, for example. This is usually preferred to leaving your assets to your siblings, but perhaps none of you have spouses or children. Even if you do not now, you might in the future.

    Jason Heath, CFP

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