Death of a Taxpayer, 12th Edition

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Death-of-Taxpayer
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Death of a Taxpayer offers a comprehensive review of the relevant income tax implications that occur at death and offers guidance to help minimize the tax burden on the estate of the deceased taxpayer.

Key tool for lawyers, accountants, financial planners, executors, trustees and other professional advisors

Death of a Taxpayer offers a comprehensive review of the relevant income tax implications that occur at death. Fully updated to reflect the latest budgetary pronouncements, legislative changes, new case law, CRA administrative positions, this exclusive edition provides guidance to help minimize the tax burden on the estate of the deceased taxpayer.

Designed as an all-in-one resource for tax professionals, it contains detailed information on the intricacies of estate planning and income tax compliance, with expert commentary you can trust to address even the most complex tax issues that can arise at death. It is a key tool for lawyers, accountants, financial planners, executors, trustees and other professional advisors.

Topics include:
  • The tax treatment on death of income from rights and things, periodic payments, refund of premiums from RRSPs, etc.
  • The tax treatment of capital property at death
  • Rollovers to spouses, common law partners and qualifying trusts
  • Special issues regarding partnerships and farm property
  • Taxation of estates and testamentary trusts
  • Obtaining a clearance certificate
  • Distributions to beneficiaries
  • U.S. estate tax and tax issues affecting non-residents
 
 

 

About the Authors

Suzanne I.R. Hanson, BA, LLB, has been practicing in the area of tax and estate planning for more than 35 years, and is tax counsel with the law firm of Fogler, Rubinoff LLP. She has written numerous articles on taxation matters for theCanadian Tax Journal, the Canadian Tax Foundation Conference Proceedings and Tax Management International Journal. She has also lectured extensively at professional conferences and courses, including those sponsored by the Canadian Tax Foundation and by CCH Canadian Limited. Ms. Hanson is a past Governor and member of the Executive Committee of the Canadian Tax Foundation.

Shaun M. Doody practices law as a member of the Tax and Estates Department of Fogler, Rubinoff LLP. Shaun's practice focuses on corporate and personal tax and estate planning for owner/mangers, entrepreneurs, trusts and high-net-worth individuals and addresses a broad range of services including estate freezes, voluntary disclosures, succession planning, wills, trusts, and butterfly reorganizations. He is a regular contributor to the Fogler, Rubinoff LLP tax newsletter Dollars and Sense and produces an annual webcast for CCH Canadian Limited dealing with estate planning and taxation on death.

Pam Prior, CPA, CA, TEP is a Partner with KPMG in Vancouver, B.C. and has been a tax practitioner for over 25 years. She focuses on advising privately held businesses and their shareholders on a wide variety of issues including corporate, personal, trust and estate planning and compliance. She also assists charities with their tax issues including structuring tax-efficient donations. She has written articles, papers and lectured for various organizations including the Canadian Tax Foundation, the Chartered Professional Accountants of Canada and B.C., and the Society of Trust and Estate Practitioners. She is a member of the STEP Inside Editorial Committee and a past President of the Fraser Valley Estate Planning Council.

 
Table of Contents

 

CHAPTER 1—INTRODUCTION 1
100 Introduction 1
102 Intestacy 2
104 Scheme of Distribution 4
106 Will Planning 8
108 Why Have a Will? 8
110 Form of Will 11
112 Requirements for Validity 13
114 Naming Executors 15
116 Certificate of Appointment of Estate Trustee
with a Will 16
118 Powers of Attorney 17
120 Will Planning and the Ontario Family Law Act 17
122 Property Passing Outside the Will 19
124 Insurance Proceeds 19
126 Joint Tenancy and Tenancy-in-Common 20
128 Joint Bank Accounts 23
130 Shareholders’ Agreements 23
xi
xii Death of a Taxpayer
132 Pension Benefits 24
140 Estate Administration 25
142 Introduction 25
144 Mechanics of Estate Administration 26
146 Income Tax Returns 29
148 Potential Liabilities of Executor 29
150 Solicitor’s Fees 32
152 Executor’s Compensation 32
154 General Comments 34

 


CHAPTER 2—COMPUTATION OF INCOME AND TAXES
PAYABLE 35
200 Filing of Returns 36
202 Liability of Legal Representative 38
204 Clearance Certificates 38
206 Elections To File Separate Returns 42
208 Periodic Payments 44
210 Rights or Things 45
212 What Constitutes Rights or Things 45
214 Computation of Rights or Things 48
216 Separate Filing 48
218 Transfer to Beneficiary 49
220 Income from a Business 49
222 Income from a Trust 52
224 Reserves in the Year of Death 53
225 Pension Income Splitting Election 56
226 Registered Retirement Savings Plans 57
228 General Rules 58
230 Refund of Premiums 59
232 Surviving Spouse 61
234 Financially Dependent Child/Grandchild 62
236 Rollover Provisions 63
238 Income Earned after Death 68
240 Joint and Several Liability 69
242 Registered Retirement Income Funds 70
244 General Rules 70
246 Designated Benefits 71
247 Income Earned after Death 73
248 Joint and Several Liability 73
249 Registered Disability Savings Plan 73
Table of Contents xiii
General Rules 73
Annual Payments 75
Death of the RDSP Beneficiary 75
250 Home Buyers’ Plan 75
251 Lifelong Learning Plan 76
252 Employee Profit Sharing Plans 77
254 Deferred Profit Sharing Plans 79
256 Registered Pension Plans 83
257 Advanced Life Deferred Annuity 85
258 The Capital Gains Exemption 86
260 1994 Capital Gains Exemption Election 86
262 Enhanced Capital Gains Exemption 88
264 Miscellaneous Provisions 90
266 Other Deductions 91
268 Personal Tax Credits 92
269 Tax Credits—Separate Returns 92
270 Medical Expense Tax Credit 93
272 Charitable Donations Tax Credit 94
273 Gifts of Insurance Policies, RRSPs, RRIFs and
TFSAs 98
274 Gifts of Capital Property—Election 99
276 Gifts of Certain Capital Property 101
278 Gift of Non-Qualifying Securities 102
280 Gifts of Cultural Property 106
281 Gifts of Ecologically Sensitive Land 107
284 Alternative Minimum Tax 108
286 Payment of Tax 108

 


CHAPTER 3—TAXATION OF PROPERTY HELD AT DEATH 111
300 Capital Property 111
301 General Rules 112
302 Payment of Tax 114
303 Utilization of Losses 114
304 Depreciable Capital Property 116
305 Shareholdings and Death 121
306 Acquisition of Control 121
307 Valuation 122
308 Stop-Loss Rules 124
309 Corporate-Owned Life Insurance 125
310 Employee Stock Options 127
311 Employee Stock Option Shares 131
xiv Death of a Taxpayer
312 Rollover of Shares in a Small Business
Corporation before 1988 132
315 Listed Personal Property 133
316 Capital Interest in a Trust 134
317 Segregated Funds 135
318 Class 14.1 (Formerly Eligible Capital Property) 136
After December 31, 2016 136
Before January 1, 2017 137
320 Canadian and Foreign Resource Properties 140
322 Land Inventory 143
324 Principal Residence 144
327 Tax-Free Savings Account 146
328 Eligible Funeral Arrangements 149
329 Alter Ego/Joint Partner Trusts 150
330 Registered Education Savings Plan 152

 


CHAPTER 4—EXECUTORS, ADMINISTRATORS AND TRUSTS 155
400 General 155
401 Testamentary Trusts 157
402 Graduated Rate Estates 159
403 Residence of an Estate or Trust 161
404 Filing Tax Returns for a Trust 164
406 Fiscal Period of the Estate and the Executor’s Year 167
Caution 169
Executor’s Year 169
408 Income Recognition by Beneficiaries 170
410 Computation of Income of a GRE 172
411 Charitable Donations by an Estate 175
412 The 21-Year Deemed Realization Rule 177
413 Interest on Inheritance Taxes 178
414 Dispositions of Property by a Legal Representative 180
416 Taxation of Distributions and Allocations to a
Beneficiary 183
418 Preferred Beneficiary Election 186
420 The Estate or Trust as a Conduit 188

 


CHAPTER 5—SPOUSES, COMMON-LAW PARTNERS AND
QUALIFYING TRUSTS 191
500 Capital Properties 191
502 What Constitutes a Qualifying Spouse Trust 193
504 Untainting a Spouse Trust 196
506 Application of Rollover Provisions 199
Table of Contents xv
508 Reasons for Avoiding Rollover Provisions 200
510 Reserves 202
512 Land Inventory 203
514 Resource Properties 205
516 Principal Residence 206
518 Death Benefits 209

 


CHAPTER 6—FAMILY LAW IMPLICATIONS IN ONTARIO 213
600 Electing under the FLA 214
602 Equalization of Net Family Property 217
604 Exclusions to Net Family Property 219
606 Liabilities at Death in the Calculation of Net
Family Property 221
608 Support Issues 222
610 Marriage Contracts as Effective Planning Tools 223
612 Post-Mortem Tax Planning 224
614 Clearance Certificates 225

 


CHAPTER 7—THE TAXATION OF PARTNERSHIPS 227
700 Introduction 227
702 Income and Loss Allocated to a Partner in the
Year of Death 228
704 Death Does Not Cause a Year End 229
706 Death Does Cause a Year End 230
708 Losses Allocated to a Partner in the Year of
Death 231
710 When a Partner Dies with an Untaxed Reserve
re 1971 Receivables 232
714 Disposition of Partnership Interest on Death 232
716 Partnership Interests that May Be Owned on
Death 232
718 Deemed Disposition on Death—General 234
720 Continuing Partnership Interest 235
722 Residual Capital Interest in a Partnership
[Section 98.1] 242
724 Right to Receive Partnership Property [Section
98.2, Subsection 100(3)] 244
726 Income Interest in a Partnership
[Subsection 96(1.1)] 245
730 Other Issues 248
732 Payments to the Partnership from the Estate of
the Deceased Partner 248
734 Work In Progress at Death 249
xvi Death of a Taxpayer
736 Death Benefit—Is It Available to the Spouse of
a Deceased Partner? 251
738 Continuation of a Canadian Partnership upon
the Death of a Partner [Subsection 98(6)] 252
740 Death of One of Two Partners and the Creation
of a Sole Proprietorship 253

 


CHAPTER 8—FARMERS AND FARM PROPERTY 259
800 Introduction 259
802 What is Farming? 260
803 Treatment of Farm Expenses and Losses 261
804 Farm Property Rollovers 262
806 Rollovers Available 262
808 Enhanced Capital Gains Exemption 262
810 Extended Definition of Child 265
812 Rollover to a Child 266
813 Rollover to a Parent 267
814 Recapture and Tax-Free Zone Preserved 267
816 Leased Assets 269
818 Shares of Family Farm Corporations and
Interests in Family Farm Partnerships 269
822 Spouse Trust Rollover 271
826 Cash Method of Computing Income 272
828 Election to Use the Cash Method 273
830 Cash-Basis Inventories and Receivables 273
832 Cash-Basis Payables and Accruals 274
833 Mandatory Inventory Add-Back 274
834 Optional Inventory Add-Back 275
836 Cash-Basis Partnerships 276
838 Livestock Inventory 276
840 Net Income Stabilization Account 278
844 Miscellaneous Items 279
846 Farm Crops 279
848 Grain Sales 280
850 Government Rights and Quotas 280
852 Principal Residence Exemption 281


APPENDIX 1—CANADIAN TAXATION AND THE
NON-RESIDENT 285
900 Canadian Taxation and the Non-Resident 285
901 Residency 285
902 Residential Ties within Canada 288
Table of Contents xvii
904 Residential Ties Elsewhere 290
906 Regularity and Length of Visits to Canada 291
908 Taxation of Part-Year Residents 294
910 Taxation of Non-Residents 295
912 Entering Canada—Deemed Acquisition Rules 304
914 Leaving Canada—Deemed Disposition Rules 306
920 Death of a Non-Resident Taxpayer 313

 


APPENDIX 2—UNITED STATES ESTATE TAX 321
1000 United States Estate Tax 321
1001 Introduction 321
1002 Transfer Taxation of Non-Resident Aliens 323
1003 Assets within the United States for U.S. Tax
Purposes 324
1004 Deductions and Credits for U.S. Estate Tax
Purposes—The Effect of the Protocol 328
1005 U.S. Gift Tax Applicable to Non-Resident
Aliens 332
1006 U.S. Generation-Skipping Transfer Tax 333
1007 Planning Property Ownership 334
1008 Possible Structures for Reducing U.S. Estate
Tax Exposure for Non-Resident Aliens
Owning U.S. Real Property 337


APPENDIX 3—CHECKLIST OF FILING REQUIREMENTS 345
1100 Checklist of Filing Requirements 345

APPENDIX 4—CHECKLIST OF USEFUL INFORMATION 351


1200 Checklist of Useful Information 351
APPENDIX 5—RELEVANT GOVERNMENT DOCUMENTS 355
1300 Relevant Income Tax Folios and Interpretation
Bulletins 355
1302 Death and the Income Tax Act 356
1304 Trusts 358
1306 Other 358
1308 Information Circulars Covering Death, Deferred
Plans, and Estates 359
1310 Tax Rulings 360
1315 Technical News 361
1317 Guides 361
TOPICAL INDEX 363

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