Death

Question 1

70(5)(d) - land and building together

Answer 1

Question 2

Vest indefeasibly

Answer 2

Question 3

Depreciable property

FMV = $175K

ACB = $100K

UCC = $80K

Answer 3

1. Deceased

PoD $80K (per sp. 70(6)(d)(i) lesser of capital cost and cost amount

UCC ($80K)

Recapture/terminal loss = NIL

Capital gain = NIL

2. Wife

Entire accrued gain and recapture of CCA are deferred and assumed by the wife.

If wife sells in the future for $175K:

PoD = $100K (lower of cost of PoD per p. 70(6)(e) - equal to decease’s original cost)

UCC = $80K

Recapture $20K

PoD = $175K

ACB = $100K

Capital gain = 75K

Question 4

When 70(6.2) election is made, what happens?

Answer 4

• Spousal rollover does NOT apply. Property transfer to spouse at FMV.
• No prescribed form for election, but need to make the election with the terminal return.
• Cannot elect partial shares or partial partnership interest. Must be a portion of a block of shares (i.e. 2.5 shares are not allowed. Can elect 1, 2 or 3 shares)

70(5), 70(5.4) apply

70(5.1), 70(6) and 70(6.1) do NOT apply

Question 5

What is the tax treatment for eligible RRSP contributions made before a person died

Answer 5

The eligible RRSP contributions may be claimed in the normal manner on the terminal return.

Question 6

Can any contributions be made to the deceased person’s RRSP after a person died?

Answer 6

No further contributions may be made to the deceased person’s RRSP after death.

Question 7

When can deceased’s estate make contributions to spouse’s RRSP?

Answer 7

RRSP contributions can be made by the deceased person’s estate to the spouse’s RRSP within 60 days of the end of the calendar year of death and subsequently claimed on the terminal return, subject to normal limitations.

Question 8

ITA 146(8.8) - Effect of death where spouse or other person becomes entitled

Answer 8

• Taxpayer is deemed to receive a benefit = FMV of the RRSP plan at time of death.
• If the annuitant died after the maturity of the RRSP plan, FMV of the plan less the portion of that FMV which becomes receivable by the spouse immediately after death.

Question 9

Does spousal rollover apply to non-residents?

Answer 9

Usually not. The spousal rollover rules in ss. 70(6) generally do not apply to NR. The subsection requires that the deceased person and the spouse were residents of Canada immediately before the death.

Question 10

Does NR need to apply for s.116 certificate when he died?

Answer 10

No, when a NR dies, any taxable Canadian property they held at the time of death is deemed to be disposed of immediately before they died. There is no s.116 certificate requirement (IT-420R3, “Non-Residents - Income Earned in Canada”, paragraph 17). However, any capital gains triggered are taxable in Canada.

Question 11

Tax treatment for registered investments (RRSP, RRIF) to deceased NR

What is the tax treatment?

What is the WHT rate?

Answer 11

The FMV of registered plan (RRSP, RRIF) at the time of death of a NR will be deemed to have been received immediately before they died. Withholding tax at 25% will apply to the income, but may be reduced due to a treaty with Canada, if one exists.

Question 12

Does deceased NR require to file a terminal return?

Answer 12

It depends. Deceased NR may need to file a terminal return if they had Canadian source income (i.e. employment or business income or income from dispositions of taxable Canadian property.

If the deceased taxpayer and/or their spouse is a NR of Canada immediately before they died, consider Cdn tax legislation and tax treaty.

Question 13

What are Rights or Things (vs Periodic Payment)?

Answer 13

• Dividends declared but unpaid [IT-212R3]
• Matured but uncashed bond coupons
• Unused vacation leave credits that are paid [IT-212R3, 2011-0421801E5]
• Declared but unpaid bonus (Partner’s right to share of partnership income prior to the date of death [2006-0168181E5]; if a bonus is owing but is undeclared at the date of death, it would NOT be a right or thing, but a periodic payment)
• Partner’s right to share of partnership income prior to DOD [2006-0177471E5]
• Retirement allowances
• Retroactive salary/wage adjustments (finalized but not paid)
• Disability benefits payouts [2008-0293131E5]
• CPP and OAS payments for the month in which the person died if the amount has not been paid before they died (the CRA considers such amounts as a right or thing because the deceased person’s right to the amount is established at the beginning of the month)
• Cash-based farmers’ and fishermens’ inventory and AR [IT-212R3]

NOT right or things:

• Canada death benefit
• Trade accounts receivable on business income
• Land included as inventory in business income
• Stub-period business income
• Rent receivable (rent owing but not yet paid to deceased tp)

Question 14

What are specifically excluded as Rights or Things under 70(2) and 70(3.1)?

Answer 14

• Capital property
• Income under 70(1)
• interest in life insurance policy 70(1)
• land included in inventory of a business 70(3.1)
• Canadian or foreign resource property

Other exclusions: These are NOT right or things:

• Accrued portion of periodic payments (IT-212R3)
• RRSP (IT-212R3)
• Recapture depreciation (Mercure Estate v The Queen (2003 TCC 655))

Question 15

Are funeal and estate admin fees deductble expenses?

Answer 15

No they are personal exp, and not deductible.

However, compensation to executors is taxable income to executors.