Chapter 21 and 22 - Divorce and Death Flashcards
When might you elect out of 73(1) (Automatically applies)
73(1) automatically applies during the transfer to a spouse or former spouse. It may be beneficial to transfer the fair value of property vs the tax cost of property when:
- transferor has non-capital lor net capital losses they won’t be able to use soon
- principal residence exemption may be claimed on the transfer of personal residence providing a higher cost base to the transferee spouse
- capital gains exemption may be claimed on transfer of WSBCs
When are you allowed to transfer RRSP or RRIF funds on a tax-free basis to a former spouse?
i) they’re living apart
ii) payment is made either because of:
- decree, judgement, or order from a tribunal
- written separation agreement
iii) transfer is made between plans
What happens to child-care expenses when couples split?
Lower/higher income earners no longer apply - each spouse will be considered a supporting person and be allowed to deduct child-care expenses paid personally while they’re in their custody to earn business or employment income or attend school.
What about tax credits (eligible dependents)
A single parent supporting a minor child is entitled to cliam an eligible dependant credit - but you may only claim one child. A parent making child-support payments may not claim this credit. Only recipient
What happens when someone dies?
The decreaed is to have a deemed disposition of all property owned at the time of death at FMV under 70(5). This happens right before their death
If there are stuff left to the spouse, it is transferred at tax cost under 70(6), but the tax representative can elect out of this to utilize losses.
What happens when you transfer non-depreciable property to spouse vs you elect out or is not transferred to spouse?
Spouse: Deemed proceeds = ACB, same with deemed cost.
Elect/Other: Deemed proceeds - FMV, same with cost. Decreaed has a deemed capital gain/loss
What happens when you transfer depreciable property to spouse vs you elect out or is not transferred to spouse? Note: This is only for assets and not other stuff
Spouse: Deemed proceeds = UCC, capital cost is the same. UCC stays the same
Elect/Other: Deemed proceeds = FMV, UCC = FMV,
If FMV < Capital Cost – diff will be deemd CCA by the person getting the asset
If FMV < capitalcost – you will get recapture or terminal loss and a capital gain
If you have capital losses and they’re used up against gains, you can use it against other income in their terminal return and then any in their income tax return in the prior year.
Yes.
What happens to unmatured RRIF?
Spouse: RRIF continue to made to spouse and taxed in their hands.
If they were not named, but are the beneficiary, the full FMV is taxed on their hands and can transfer to their own RRIF and claim a deduction on the amount transferred.
Other: FMV taxed at the decreased final return
What about unmatured RRSP?
Spouse: Taxed in spouses hands, but can transfer to their RRSP or RRIF and claim deduction - resulting in no taxes. Contribution room is also not impacted
Other: Same as RRIF
What about TFSAs?
Spouse: Becomes new beneficiary and keeps the tax-exempt status of the TFSA
Other: Proceeds of TFSA becomes part of taxpayer’s estate and is split. No tax consequences. If spouse is not named, but spouse received a proceeds from the TFSA, proceeds can be used ot make exempt contribution to surviving spouse if:
it is made within one year
designated as an exempt contribution in the surviving’ spouses tax return
What is a terminal or final return? and when is it due?
Must be filed for Jan 1 to the date of death and must include all periodic amounts that were earned prior to death - interests, rent, salaries and accruals
What are right or things return?
You can die owning “right or things” such as:
- dividends declared before death but not received
- salaries, commissions, vacation that is owed to you but not paid
there are 3 options:
- report it in the final return in other income
- elect to include the value of right or things in a separate tax return
- or if its transferred in other beneficiares it should be reported in their income. Can be transferred to those wiht little other income
What are the benefits of having a separate return for right or things?
income may be taxed at a lower rate because graudated income tax rates are applied to personal
tax credits may be claimed in full on each return
Which personla tax credits can be claimed on full and not prorated?
BASIC
Age
Spouse/eligible dependent
infirm dependent over 17
caregiver
family caregiver for children under 18
