# Beating The Tax Man While Staying Out Of Jail



## dogleg (Feb 5, 2010)

I have read the excellent book , "You Can't Take It With You", however it doesn't seem to cover all the possibilities for legally getting money into the hands of ones children without either you or them or both being taxed. Is there a 'short course' on this topic that I can access?


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## Just a Guy (Mar 27, 2012)

First off, let's be clear of expectations...


Well, if you've already paid tax on the money (say income tax) then your kids should just get the money for the most part. Anything that's already been taxed, shouldn't usually be taxed again. 

It's the earnings you haven't paid tax on that the government wants it's share of. Remember, until you sell, your investments are growing tax free...so stocks, bonds, real estate, all those things are increasing in value...and you are expected to contribute some of that wealth back.

There are legal ways to minimize the taxes owed...write offs, taking the money out slowly, income splitting, etc. but these need time. There is also term insurance to cover the taxes. I don't know of any legal, simple ways to eliminate taxes. I'd talk to a tax planner or accountant.

You usually also need to plan well in advance (like setting up corporations and shareholders), because it's harder later. Transferring in assets later trigger capital gains for example.


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## wendi1 (Oct 2, 2013)

If your children are over 18, you can just gift money to them. No taxes on a gift.


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## Just a Guy (Mar 27, 2012)

As long as you payed the initial taxes. You can't gift say a house that had massive capital gains without paying the tax.


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## liquidfinance (Jan 28, 2011)

Just a Guy said:


> As long as you payed the initial taxes. You can't gift say a house that had massive capital gains without paying the tax.


Yet you could sell the principal residence and gift all of the gain which would be tax free.


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## kcowan (Jul 1, 2010)

I have given each of my kids $100k and, through RESP, I am giving my grandkids another $200k and that is before getting serious about succession planning. No tax on any of it and part of the $200k is government grant.


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## Just a Guy (Mar 27, 2012)

If parents were smart, they could legally give nearly everything they own away before they die. Of course, I've heard of kids who have basically, legally, stolen everything from their parents leaving them destitute when they were given power of attorney...sadly, I've heard of (and seen it first hand) that much more often.

I suppose it depends on how much you can trust your kids...but money has a way of changing people. I've seen millionaire squabble of a minor amount of money they could get for free...


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## uptoolate (Oct 9, 2011)

Incorporating if you were eligible. Allows tax deferral of a large amount each year by using the small business rate. Also allows income splitting and income deferral. Have to have a decent income above living expenses for it to be worthwhile.


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## fraser (May 15, 2010)

It depends on whether you are speaking of pre tax monies or monies that are free and clear, ie monies taken into income and taxed appropriately. 

The only issue for the latter is provincial probate taxes. These can easily, and very simply be avoided. IF you just simply everything to the estate to be divided up according to your will then you will pay Probate tax in all provinces except Quebec and Alberta (I believe). 

The other BIG issue can be estates where part of the assets are located in another jurisdiction-like the US. Especially if it is real estate. At least this is what our accountant is advising us.

If it is pre tax then you really need to seek the counsel of a professional tax advisor.

We currently live in a province that does not have a Probate tax. IF we move, and we may at some point, one of the first things we will do is review our will with the prevailing provincial statutes AND ensure that our assets as set up in such a way as to preclude the hassle and the payment of Probate tax. Did this once for a parent and learned enough to know what not to do.


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## OptsyEagle (Nov 29, 2009)

dogleg said:


> I have read the excellent book , "You Can't Take It With You", however it doesn't seem to cover all the possibilities for legally getting money into the hands of ones children without either you or them or both being taxed. Is there a 'short course' on this topic that I can access?


Did the book cover life insurance. Almost anyone can make a related person very wealthy when they die by simply buying life insurance. Every life is a tax shelter waiting to be utilized if they really wanted to. Life insurance for the living insured is a very bad idea, but for the dead insured, there is very little other avenues that will compete with the after tax benefits of a permanent level cost universal life policy properly constructed and competitively quoted.

WOW, I should sell the stuff. I'd make a killing. lol.


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## dogleg (Feb 5, 2010)

These are great ideas. Thanks to all of you. Tell me , can a person set up a bank account with a son or daughter such that money can only be taken out with two signatures ie. father or mother and the child and still have it count as a gift and not become part of an estate valuation?


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## Just a Guy (Mar 27, 2012)

As far as I understand, joint accounts automatically go to the other party upon death...that being said, most bank accounts contain after tax dollars, so it really doesn't matter.

Not sure what happens with joint investment portfolios.


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## sags (May 15, 2010)

The passing of joint bank accounts, appears to depend on who made the bulk of the deposits, what the bank account was used to pay, and the intention of the primary account holder.

The onus is on the surviving joint bank holder to prove the intention was a gift.

I would think the rules are in place to protect other possible residual beneficiaries of the will.

http://lerners.ca/articles/288/

I would be interested to know more information on how to avoid probate fees. 

From my understanding, probate is mandatory for an estate of any consequence, and required where any property is involved.

When the letters of probate are requested, all assets have to be listed at fair market value. Before the estate is closed, the disposition of all the assets must be documented.

Financial institutions will require letters of probate before allowing any transactions from a deceased accounts, to protect themselves from future claims.

I would think estate taxes to the CRA would be more of a concern than probate fees, in any event.


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## Canadian (Sep 19, 2013)

Joint bank accounts are set up with the choice of right of survivorship or no right of survivorship. The former means that the child has total rights over the contents of the account after the parent passing. The latter means the account is frozen upon death and the will dictates the fate of the money.

To answer dogleg's question - yes, accounts can be set up so that both parties are required to sign for withdrawals or transfers out of the account.


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## cainvest (May 1, 2013)

sags said:


> I would be interested to know more information on how to avoid probate fees.
> 
> From my understanding, probate is mandatory for an estate of any consequence, and required where any property is involved.


Two simple ways to eliminate/reduce:
1 - Live in a province that has a low probate fee.
2 - Give the majority of the money/assets away before one dies.


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## dogleg (Feb 5, 2010)

Sags: The article you mentioned on joint accounts is a good one and points out some of the legal pitfalls you can fall into. The gifting of the family home is interesting. Evidently you can't just transfer title to a child tax free but can sell the house and gift the money to them tax free. I don't follow the logic here???


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## kcowan (Jul 1, 2010)

dogleg said:


> Evidently you can't just transfer title to a child tax free but can sell the house and gift the money to them tax free. I don't follow the logic here???


It transfers tax free. It just becomes capital gains taxable on its value at that moment. It even avoids property transfer taxes.


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## dogleg (Feb 5, 2010)

KC Can you expand on this please.


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## Just a Guy (Mar 27, 2012)

If you sell the house, you've "realized" the capital gains. Being your primary residence, you don't pay capital gains on the house, so you get all the money tax free.

If you "gift" the house, you would technically not be "realizing" the capital gains, thus you would be avoiding realizing the tax and your kids would be getting the money while avoiding (evading) the tax. 

While technically, it may be the same in some cases, if the house you gifted wasn't their primary home, it would be subject to capital gains, so I think the government wants you to sell it to keep everything clear.

A simple way to think of it is, if you've paid the taxes on it, and can prove it, gifting is free (we only tax twice on gasoline and other hidden taxes). If you haven't payed taxes on it, or prove that you did, the government wants it's cut first,


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## hboy43 (May 10, 2009)

Just a Guy said:


> If you "gift" the house, you would technically not be "realizing" the capital gains, thus you would be avoiding realizing the tax and your kids would be getting the money while avoiding (evading) the tax.


Um, you might want to research "deemed dispositions" on your way to retracting this statement.

hboy43


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## Just a Guy (Mar 27, 2012)

I admit it was probably oversimplified...my point was more that the money in the house hadn't been taxed as opposed to a paycheque. It was supposed to be more of an analogy than a literal explanation.


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## dogleg (Feb 5, 2010)

Maybe the summer heat is clouding my thinking. Aren't the federal tax rules more explicit than this? Could you explain further please.


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## Eclectic12 (Oct 20, 2010)

dogleg said:


> ... The gifting of the family home is interesting.
> Evidently you can't just transfer title to a child tax free ...



The links I was reading were saying that it was tricky but possible.

The trick with a home (or cottage) is that what makes it tax free is the being a principal residence.
So unless the transfer can be handled in a way that the home is a PR for *both* parents and kids, it's not worth the effort.

If it can't be a PR for the kids, then the CG is likely going to be small between date of death and when the home is sold versus the CG the kids are likely to have to pay.




dogleg said:


> ... but can sell the house and gift the money to them tax free.
> I don't follow the logic here??? ...


Again ... it's being a PR that makes the property tax free from the parent's perspective. 

All it takes to break the "sell the house and gift the money to them tax free" is to have the parents declare some other property as their PR. 

A common example that has happened is the parents designating their cottage as their PR instead of their home.

The date this election is made, their home is deemed to have been sold for FMV, which sets their cost base. 

If they sell the house later, since it's no longer their PR - they have to report the capital gain between what they sold for and what their cost was (same as shares in a company). 


Cheers


*PS*

Don't forget here that selling a house for cash or gifting it to a child does not tell you if the sale of the house is taxable or not for the parents.


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## praire_guy (Sep 8, 2011)

Just a Guy said:


> As far as I understand, joint accounts automatically go to the other party upon death...that being said, most bank accounts contain after tax dollars, so it really doesn't matter.
> 
> Not sure what happens with joint investment portfolios.



As per a Supreme Court ruling, bank accounts held jointly between a parent and an adult child are assumed to be for convenience and not intended as a gift unless a letter is drafted up stating so. 

The jointly held account will not automatically go to the surviving adult child. 

And for the life of me I don't know why people make a big deal about probate. Trust me it's the least of your concerns dealing with an estate.


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## johnt78 (Aug 12, 2014)

I am fairly sure there are plenty of studies that show that most people want to do the “right” thing, even when they don’t, and that making it easy (and non threatening!) would enhance compliance in the majority of cases. I would be interested to know how much additional information and material is supplied with these letters. I know several people who would be emotionally disabled by threats, less likely to comply, and unable to seek further information.


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