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Many Canadians are expecting some form of inheritance related to what’s known as the “great wealth transfer,” but a lot of them are unsure of what tax obligations come along with it.
About $1 trillion is expected to be handed down to younger generations in the next few years, according to Chartered Professional Accountants Canada, in what will be the largest wealth transfer in Canadian history as the silent generation and baby boomers hand the baton to their children.
Almost 60 per cent of Canadians expect some form of inheritance, but just 33 per cent have a good understanding of the tax considerations, according to a new survey by H&R Block Canada Inc.
“Money received from an inheritance is not considered taxable income by the Canadian Revenue Agency (CRA). This means that Canadian beneficiaries don’t have to pay taxes on that money or report it as income on their tax return. But that doesn’t mean that inherited assets are tax exempt,” Yanick Lemay, a tax expert at H&R Block Canada, said in a release.
“When an individual dies, the CRA treats the deceased’s assets — such as real estate, investments and registered savings plans — as if they were sold at fair market value at the time of death. This means that the deceased’s ‘estate’ pays any taxes owed to the government.”
It may seem taboo, but he believes Canadians need to have discussions with their loved ones about finding ways to minimize the tax burden of an inheritance.
“It’s important to understand and forward plan around tax-friendly ways to pass money and assets onto loved ones,” he said. “For example, there are significant tax exemptions for spouses or common-law partners, gifting prior to death, leveraging tax-free life insurance, maxing out tax-free savings accounts (TFSAs) and setting up trusts.”
H&R Block Canada said Canadians should be aware that they may be liable for taxes on capital gains from property, taxable income from retirement savings accounts and probate fees against a deceased’s estate, among other taxes they face.
It recommends people gift some money or real estate before death, add a family member for joint ownership of an asset or shift more savings into a TFSA to avoid some of the tax burden on inheritance.
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Canada’s inflation rate rate jumped to 2.6 per cent in February, after Canada’s tax holiday ended in the middle of the month.
The removal of the tax break drove prices higher in most sectors, according to Tuesday’s data from Statistics Canada. The Bank of Canada expected an inflation bounce back when the break ended, but the reading marks the first time since October that inflation has ticked above the central bank’s target of two per cent.