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Many people don’t realize the large amount of tax they could owe when they die. Although estate and inheritance taxes do not exist in Canada, there are still areas of your estate such as RRSPs, RRIFs, non-registered investments and real estate that could be subject to taxation at death. The taxes applied will depend on the type of asset and it’s value on the date of your death. There are rules that allow you to transfer your assets at death to your surviving spouse allowing you to defer taxes until your spouse dies. The rules described below assume there is no surviving spouse.
RRSPs and RRIFs
The amount in these plans must be reported on your final tax return as if they are being cashed in. If you are in the top tax bracket, the tax could amount to almost 50% of the proceeds.
GICs, Term Deposits, Savings Accounts
If these are held outside of your RRSP or RRIF, there are no tax implications outside of reporting interest income earned.
Stocks, Bonds and Mutual Funds
On death, Ottawa treats these investments, provided they are held outside of your RRSP or RRIF, as if they are sold. Your executor will need to determine the capital gain – the increase in value of these investments from the time you bought or acquired them to the date of death – and include 50% of the gain on your final income tax return.
Family Cottage and Rental Property
As with stocks and mutual funds, you will be need to calculate the capital gain on these properties and include 50% of any gain on your final tax return. The exception is your personal residence which is exempt from capital gains tax.
Cars, jewelry and artwork are classified as personal property and are subject to capital gains taxes if their value on your date of death is more than what you paid for them.
Final Tax Bite Calculator
Use this calculator to estimate the potential taxes owed on your final income tax return.