May 1, 2019
Capital gains from business, cottage, second residence, rental property, or non-registered investments are subject to taxation when the property is disposed of. How and when the property is disposed of requires serious consideration, as the tax implications can be enormous.
Reviewing budget tax changes Consider setting an appointment to review strategies if you have previously used life insurance inside a corporation to plan to pay your estate’s capital gains tax. Legislative tax changes may necessitate that an optional strategy is implemented.
Let’s look at some common tax problems that may be brewing if left unattended:
- If you own a family business Many family businesses have accrued large capital gains over time, due of course to the success of the businesses. When sold, the business will incur a taxable disposition that could be subject to high taxable capital gains.
- If you own non-registered investments outside of a TFSA Any capital asset that is held outside of an RRSP, or a TFSA whether a stock, GIC, or mutual fund to name only a few, will be taxed on the difference between its fair market value at the time of sale, and the cost of the asset. The difference between the purchase price and the sale price will be either a taxable gain or loss.
- If you own a cottage or second residence When you sell your cottage (or a second residence), or you and your spouse die, capital gains tax will be triggered on the difference between the cost and the fair market value at the time of sale. One major consideration is how to keep the cottage (or second residence) in the family. Assuming the kids want the secondary real estate, how can the tax problem be handled? If there are not enough assets or cash in the estate to pay the tax bill, it may be that the property has to be sold. This will apply to rental properties as well.
- If you own RRSPs at death RRSPs will be fully taxed as income upon the death of the individual or the death of a surviving spouse. Depending on the situation, large RRSP/RRIF holdings can present significant taxation.
It is advisable to discuss this with your advisor early on, to get more direction on your best tax strategy for both capital gains tax and large income taxation at death. Life insurance can offer a valid method of making up for more than your taxation costs.
Source: Licensed by Adviceon Media
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