CANADA DOESN’T HAVE AN ESTATE TAX…….THINK AGAIN
Every so often some tenured academic or “think tank” tells us that Canada doesn’t have an Estate Tax (or Inheritance Tax).
Those that promote the idea of an Inheritance Tax might have chosen to ignore Section 70 of the Income tax Act. Reading that one section will show Canada does have a such a tax event, just not in name.
Section 70, the deemed disposition of the deceased’s assets “immediately before death” provides for the taxation of assets in an estate. All assets are valued and then, subject to some exemptions and spousal rollover provisions, the remaining taxable assets create a liquidity need in the estate. The Taxman cometh.
Sounds like an Inheritance Tax to me!
As onerous as this tax event seems, in Canada the taxation of estates is broadly speaking equitable. Those that leave more, pay more. Planning for any liquidity needed to pay any taxes can be tax preferred and cost efficient.
The almost sacred treatment of Life insurance by the Income Tax Act means that any liquidity need in an estate can be funded with the tax preferred proceeds of life insurance.
Any tax owing can be paid cost effectively and time efficiently. No assets would need to be sold to satisfy the taxman’s demands. Selling assets to pay a tax can mean paying taxes to pay the tax. Not smart tax planning.
By way of comparison the UK’s Inheritance Tax gives a miserly £320,000 exemption which includes a principal residence. This exemption can increase by way of the equivalent of the Canadian spousal rollover provision. The basic exemption has not increased in decades.
In addition, unlike Canada there is no provision for an adjusted cost basis on investments within the estate. That is not taxation, that is confiscation!
Back to Canada. Taxation of an estate in Canada is far more favourable. If you want to preserve your family assets by providing tax advantaged liquidity the most efficient method is tax free life insurance. A Liquidity Contract ™
Planning for your estate liquidity needs will help preserve your hard-earned assets and create a smooth transition of your estate to the next generation.
