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Tag: probate

  • Tax implications of adding a child’s name to your rental property – MoneySense

    Tax implications of adding a child’s name to your rental property – MoneySense

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    Gifting some or all of a rental property

    The act of adding a name to a property itself does not give rise to capital gains tax. There’s a distinction between legal ownership (whose name is on title) and beneficial ownership (who technically owns the property). If only legal ownership changes, and not beneficial ownership, there may not be a tax event.

    For example, an elderly parent might add their child’s name to their bank account or to the title to their home. They might do this based on the perception that it will simplify dealing with the assets as they age, or in an attempt to avoid probate tax. In these situations, a power of attorney or similar estate document (depending on the province or territory) may be better. The asset may not fall outside of the estate and avoid probate if beneficial ownership remains with the parent. There can also be risks to adding a child’s name to title, including creditor issues if the child is sued, family law disputes if the parents divorce, and elder abuse given the children can access the asset.

    Was there a deemed disposition?

    In your case, Flo, it sounds like your husband intended to partially dispose of the property. Did he document this specifically with a lawyer, or did he just add your daughter’s name to the rental property? Is she now receiving half the rental income?

    A true intention to transfer results in a deemed disposition of one-half of the property at the fair market value. It’s equal to selling part of the property, with tax payable when your husband files his tax return next year.

    Dealing with the increased capital gains inclusion rate

    It seems your husband added your daughter to the property title because of the increase in the capital gains inclusion rate on June 25, 2024.

    Beginning on that date, the inclusion rate for individuals rose from one-half to two-thirds for a capital gain of $250,000 or more in a single year. This means two-thirds of the capital gain is taxable instead of just one-half (as was the case prior to June 25). It’s only the capital gain in excess of $250,000 that is taxable at the higher rate. (For corporations and trusts, the inclusion rate is two-thirds for all capital gains.)

    You mention, Flo, that this was done for estate planning purposes. I assume you intend to hold the property for the rest of your lives. If that could be many years, it may not be advantageous to accelerate the payment of capital gains tax. Some of the capital gain will still likely be subject to the higher inclusion rate—no matter what—and paying tax earlier than you need to could be disadvantageous.

    I’m raising this not as a criticism, but because you may still be able to reconsider, if you haven’t specifically documented your intention and you simply added your daughter’s name to the property title. You should do some tax calculations with your accountant and discuss the documentation of the transfer with your lawyer.

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    Jason Heath, CFP

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  • 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

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    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.

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    Jason Heath, CFP

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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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  • How to avoid or reduce probate fees in Ontario – MoneySense

    How to avoid or reduce probate fees in Ontario – MoneySense

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    What is Estate Administration Tax in Ontario?

    Estate Administration Tax, commonly known as probate fees, is a mandatory tax imposed by the Ontario provincial government. It is placed on the estate of a deceased individual and is calculated based on the fair market value of the deceased’s estate, including all assets, property and investments on the date of death. It’s important to note that Estate Administration Tax is only triggered and payable when the estate goes through the probate process, which is a legal procedure that happens in two circumstances.

    Firstly, it verifies and validates the last will and testament of a deceased individual in Ontario, ensuring authenticity of the will, and appointing an executor to manage the distribution of assets.

    Secondly, when an Ontario resident passes away without a will, probate is necessary to establish a legal executor for asset distribution. And it ensures that the process follows legal guidelines while safeguarding the interests of the beneficiaries.

    Calculating probate fees in Ontario

    The calculation of Estate Administration Tax in Ontario is relatively straightforward, and can be found on Ontario.ca, if you are looking to play around with the numbers yourself. Like marginal income tax brackets, the tax rate is determined by a tiered system that corresponds to the total value of the estate on the date of death. Here’s a breakdown of the current rates:

    Estates Valued Under $50,000

    If the estate’s total value is less than $50,000, no Estate Administration Tax is payable.

    Estates Valued Over $50,000

    Estates valued above $50,000 are subject to a tax rate of $15 per $1,000 or part thereof.

    For example, if an estate is valued at $200,000, the calculation would be as follows:
    The first $50,000: = $0
    The remaining $150,000: ($200,000-$50,000=$150,000) x $15 per $1,000 = $2,250

    So, the total estate administration tax for an estate valued at $200,000 would be $2,250.

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    Debbie Stanley

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