# CRA and ESTATE TAXES



## dawne (Jan 18, 2014)

Is anyone available on this site who I could ask a question or 2 about how these affect each other? (no point writing it out if no specialists on board.....)

Thanks.


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## Guban (Jul 5, 2011)

Ask your question. You just might get a response that make sense.

In the mean time, I will respond that the CRA collects the required taxes on estates.


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## Jaberwock (Aug 22, 2012)

When dealing with a deceased person there are up to three tax returns to file:

1. The final tax return, which must include all income received up to the date of death. 
2. A "rights and things" return which includes any income which was payable to the deceased at the time of death, but had not actually been paid - for example, dividends declared but not received.
3. Estate return, which includes any income earned after the date of death, up to the time when the estate is wound up and the monies disbursed. CRA will normally allow up to two years for this process, so it is possible to leave money in the estate and file tax returns for the estate instead. This can be advantageous if the person inheriting the funds is in a high tax bracket, because the estate pays taxes starting in the lowest bracket and increasing as per a regular tax return (except there is no personal allowance on the estate tax return). 

Assets are deemed to have been sold on the death of the owner. Capital gains and losses have to be claimed as if the assets had been sold (unless the person who inherits is the spouse of the deceased).

The other fees which have to be paid are the probate fees, which vary by province. (Ontario has the highest probate fees). These are paid to the court which is handling the probate. Banks will usually insist on the will being probated before they will dispense any funds, except small amounts for funeral expenses.

There are no inheritance taxes, estate taxes are only paid on the income earned in the estate, not on the value of the capital 

I am not a specialist, this is just what I learned having gone through the tax filings and winding up of an estate.


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## dawne (Jan 18, 2014)

Thanks for your replies.

We may have touched on this a few months ago....now, clarifying:

1. If there is not enough $ in estate of deceased to cover taxes owed in past, would CRA first go to estate to get those funds? And then if insufficient, would they go to beneficiary to get what is owing? (my understanding is, beneficiaries do not pay debts of deceased, according to lawyers I asked.) But since I received a LIF (as sole beneficiary), some are saying I will be asked by CRA to pay balance of owing, if not enough $ in estate.

2. One income tax calculation was done by tax accountant. He said he did everything up to death (last Oct.), and also from Oct. to end of 2013. He emphatically said I didn't need to do anything else. (I was just trying to help CRA by taking paperwork in to be done, paid for it out of pocket. I was executor, but renounced and had all paperwork here. Understand that anyone can do someone's taxes, so I just thought it would help.)

3. Last on the list and perhaps least important, my tax accountant did taxes after Apr. 30. I specifically asked him to do before so there wouldn't be penalty owing...(as it would be high from am't of taxes owing.). CRA added over $1K as penalty. So if they come to me if there isn't enough in estate, then will I have to pay penalty? Accountant said it didn't matter with estate taxes as it would only come out of estate...and he emphatically said they would 'not' chase me for $. Since he was busy, he just didn't do mine before deadline.

Not sure who to believe, and will probably take another yr to work out, so I don't want to spend all the $. Would like to have an idea of how this will work.
Note: I am not spouse.



Jaberwock said:


> When dealing with a deceased person there are up to three tax returns to file:
> 
> 1. The final tax return, which must include all income received up to the date of death.
> 2. A "rights and things" return which includes any income which was payable to the deceased at the time of death, but had not actually been paid - for example, dividends declared but not received.
> ...


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## sags (May 15, 2010)

Found this on LIF from an estate.

http://www.investingforme.com/classroom/account-type/life-income-fund/designating-a-beneficiary

[*B]Designating my estate as the beneficiary of my LIF where no surviving spouse or spouse waives their entitlement*_[/B]

By designating your estate as your beneficiary upon your death, your LIF assets become part of your estate and their distribution is guided by the instructions in your will. Having your LIF assets distributed through your estate may be desirable for various estate planning reasons including the following:

You have beneficiaries that are minors.
You have beneficiaries that are physically or mentally dependant and require assistance in managing their finances.
Your will creates Inter-vivos Trusts that need to be funded with your LIF assets.
Your estate will need liquid assets to help pay the income tax owing as a result of your death.
Your estate will require liquid funds to pay cash bequests you have made through your will.

Note: There may be additional estate planning reasons for designating your estate as the beneficiary of your LIF.

When you designate your estate as the beneficiary of your LIF assets, your LIF investments become an asset within your estate and as such these assets will add to your estate’s Probate Fees payable. Each provincial government publishes a Probate Fee schedule and the fees vary by province.

*Designating a person other than my spouse as the beneficiary of my LIF where no surviving spouse or spouse waives their entitlement*

When you designate someone other than your spouse as the beneficiary of your LIF, your LIF investments will transfer automatically upon your death to that person. Your LIF investments are withdrawn from your LIF and transferred into the name of your beneficiary as non-registered investments. Your beneficiary receives and holds the transferred investments in a taxable environment. The LIF assets cannot be transferred into your beneficiary’s registered account.

*Your estate must include the value of your LIF assets in your Date of Death Income Tax Return and your estate is responsible for any resulting income tax payable.*

The financial institution that administers your LIF will transfer your LIF assets to the designated beneficiary and issue an Income Tax Information slip, for the dollar value of your LIF, as at the date of death, which your estate’s legal representative will include in your Date of Death Taxable Income. 

Because your LIF assets are withdrawn and transferred directly to your designated beneficiary, they are not included as an asset of your estate and no Probate Fees are paid._

Generally, where there is no money or assets in the estate to pay the taxes, the CRA will follow the distribution of the assets to recover the taxes.


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## dawne (Jan 18, 2014)

sags said:


> Found this on LIF from an estate.
> 
> http://www.investingforme.com/classroom/account-type/life-income-fund/designating-a-beneficiary
> 
> ...


Thank-you sags...I like the figure illustration in the link too...Simplifies and shows various routes the money takes depending on situation. So, it looks like it's tax-free from institution, as I was registered beneficiary. But my 'taxable environment' would be, my considered 'income' for the yr? Then it could be taxed as income next yr for my taxes? That's puzzling, as I thought inheritance $ was not taxable. So I guess I'll find out next tax season...? Maybe they classify it differently as it will have a separate tax form...? 

And the last 2 lines there are still puzzling: if LIF assets are 'not included as an asset of estate', then how does CRA follow 'distribution of assets to recover taxes'...?? Is the LIF then considered an asset of the estate that they will follow? Or are they referring to other assets? .....Just when I think I 'get' it, something else seems unclear.


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## carverman (Nov 8, 2010)

dawne said:


> Thank-you sags...I like the figure illustration in the link too...Simplifies and shows various routes the money takes depending on situation. So, it looks like it's tax-free from institution, as I was registered beneficiary. But my 'taxable environment' would be, my considered 'income' for the yr? Then it could be taxed as income next yr for my taxes? That's puzzling, as I thought inheritance $ was not taxable. So I guess I'll find out next tax season...? Maybe they classify it differently as it will have a separate tax form...?
> 
> And the last 2 lines there are still puzzling: if LIF assets are 'not included as an asset of estate', *then how does CRA follow 'distribution of assets to recover taxes'...?? Is the LIF then considered an asset of the estate that they will follow? Or are they referring to other assets? ..*...Just when I think I 'get' it, something else seems unclear.


Here's the way I see it:

RE: "other" is named as beneficiary on deceased's plan
https://www.phn.com/Portals/0/PDFs/AccountTypes/RIFBeneficiaryInfo.pdf

How are the RIF/LIF ----------------------- Deceased gets T4RIF at 
plan proceeds dealt ---------------------- fair market value at date 
with at time of ----------------------- of death. Beneficiary would 
disbursement? ----------------------- get T4RIF slip for any 
------------------------------------- income earned.

T4RIF is a Statement of Income From a Registered Retirement Income Fund. A T4RIF information slip is prepared and issued by a financial institution to tell you and the Canada Revenue Agency (CRA) how much money you received out of your registered retirement income fund (RRIF) for a given tax year and how much tax was deducted. Use T4RIFs in preparing and filing your Canadian income taxes.


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## dawne (Jan 18, 2014)

carverman said:


> Here's the way I see it:
> 
> RE: "other" is named as beneficiary on deceased's plan
> https://www.phn.com/Portals/0/PDFs/AccountTypes/RIFBeneficiaryInfo.pdf
> ...


Thanks carverman....that makes sense, and is what I thought it might be. Should send this to my tax accountant if they come to me for any taxes that aren't covered, which could include 'late' penalty. He seemed pretty emphatic that I had nothing to worry about and everything is done, wrapped up, and for me to 'furgedaboudit'.......that probably remains to be seen. But Mon. I will phone him just to let him know about this assessment, and to make sure he finalized everything.


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## carverman (Nov 8, 2010)

dawne said:


> T Should send this to my tax accountant if they come to me for any taxes that aren't covered, which could include 'late' penalty. He seemed pretty emphatic that I had nothing to worry about and everything is done, wrapped up, and for me to 'furgedaboudit'.......that probably remains to be seen. But Mon. I will phone him just to let him know about this assessment, and to make sure he finalized everything.


IF the late filing penalty ( for the estate taxes LATE FILING is charged by CRA)_, then your accountant IS responsible for that late filing fee, IMO. 
I presume he was paid a fee for filing the taxes for the estate?
If so, he is DIRECTLY RESPONSIBLE for the situation where a late filing fee will be charged by the CRA. 

It is not as though he didn't know..busy or not...CRA's rule applies to a EVERYBODY.


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## dawne (Jan 18, 2014)

Well, the tax assessment says the late penalty fine is included in amount on penalties line....meaning, it's added to taxes owing, not sent to the accountant who did the taxes. Yes, he was paid a fee for his service....But I was just reminded tonight, that due to the computer glitch in Calgary at that time, I believe all taxes done were given a grace period of..? not sure how long, but it could likely be contested if it ever came to that....? But who wants to go to that trouble of fighting CRA? Does anyone 'ever' win against them? 



carverman said:


> IF the late filing penalty ( for the estate taxes LATE FILING is charged by CRA)_, then your accountant IS responsible for that late filing fee, IMO.
> I presume he was paid a fee for filing the taxes for the estate?
> If so, he is DIRECTLY RESPONSIBLE for the situation where a late filing fee will be charged by the CRA.
> 
> It is not as though he didn't know..busy or not...CRA's rule applies to a EVERYBODY.


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## fraser (May 15, 2010)

Keep in mind that you may have to file Probate. And depending on your province, the estate will be taxed on monies left to the estate, ie not designated (different from 'willed') to a specific beneficiary.


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## carverman (Nov 8, 2010)

dawne said:


> Well, the tax assessment says the late penalty fine is included in amount on penalties line....meaning, it's added to taxes owing, not sent to the accountant who did the taxes. Yes, he was paid a fee for his service....But I was just reminded tonight, that due to the computer glitch in Calgary at that time, I believe all taxes done were given a grace period of..? not sure how long, but it could likely be contested if it ever came to that....? But who wants to go to that trouble of fighting CRA? *Does anyone 'ever' win against them?*


Sure. If you are willing to prepare and have a valid case, you can take CRA to tax court.

But it also depends on how much the late penalty charge is. 

Even if it was included in the assessment, the accountant, (presuming he was a professional accredited accountant), and not just somebody who is willing to do accounting for you..is responsible for the late penalty charge. 

Yes there *was *a grace period of about a week during the Heartbleed bug hacker access into CRA computers, and I'm sure CRA gave you the benefit of the doubt for that extra week. But if your accountant ignored even that extra time..I would be pounding on his door demanding restitution from him, not CRA who just enforces the rules on the tax filing cutoff date.


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## fraser (May 15, 2010)

Sometimes it is not a case of fighting CRA but rather a case of providing more data or additional clarifications.

My daughter was audited-reassessed w/penalty last year. She had a number of telephone conversations with them over a period of several months, forwarded addition documentation, and clarified a few items. 

CRA did yet another re-assessment which resulted in a substantial reduction in the monies owing and the penalties assessed. Well worth her while. CRA was very patient-and fair. It was her first encounter with the 'system'.


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## dawne (Jan 18, 2014)

Late penalty charge is $1K. Date on forms is May 13. He is professional, accredited, and has own business. He said it doesn't matter because it's for someone 'deceased'. hmmm. Then why the charge, is my question. And we'll see if CRA gets enough from estate to pay it. In any case, it's money that could/may have gone to another debtor, so I'm concerned about him saying it doesn't matter. I took paperwork in to him early enough, and I sure don't want to fight anyone over this. However, I forgot about LIF paperwork, it was in separate pile here at home, and would make huge diff. in what was owing to CRA from estate. (there was a substantial am't owing anyway) So when I took it in, he said no problem, that he'd just add it to what he sent in already, would be like 'revised'. Does that sound reasonable?
Since I'm not executor, it's all out of my hands at this time. Maybe I'm worrying about nothing, but $1K is a reasonable am't to 'not' want to pay......unnecessary and unfair for it to come out of estate, or my pocket would you say?



carverman said:


> Sure. If you are willing to prepare and have a valid case, you can take CRA to tax court.
> 
> But it also depends on how much the late penalty charge is.
> 
> ...


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## dogleg (Feb 5, 2010)

Since you folks on this thread are dealing with current estate tax issues I wonder if I can trouble you with a question. Do you know if a parent can transfer title to their home to a son on a tax free basis prior to the parent's death.


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## Eclectic12 (Oct 20, 2010)

As long as the child doesn't have a separate principal residence, I suspect it should be okay.

If they do have a PR, 


> If the house is the parents’ principal residence (or “PR”), there are no tax consequences to the parents (assuming their cottage is not their PR). However, if the child has a PR of their own, they will likely be taxed on 50 per cent of any future appreciation of the parents’ home.
> 
> As a rule of thumb, parents should not transfer their homes to their children, since the net result is almost always the conversion of a tax-free gain on their PR into a taxable gain in the hands of the children, leading to less overall family wealth.


http://www.theglobeandmail.com/glob...id-these-common-tax-mistakes/article15439582/

It would be good to get advice as mistakes can be costly.
http://www.thestar.com/business/per.../these_seniors_made_a_700000_tax_mistake.html
http://www.thebluntbeancounter.com/2013/05/transferring-property-among-family.html


Cheers


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## nobleea (Oct 11, 2013)

Eclectic12 said:


> It would be good to get advice as mistakes can be costly.
> http://www.thestar.com/business/per.../these_seniors_made_a_700000_tax_mistake.html
> Cheers


I read through this one and somethign doesn't seem right. Property was sold for 1.85M and they had taxes of 700K on it. Is it not eligible for capital gains? If so, then even if they transferred it at 0$, there's no way taxes should have been that high. More like a third of that.


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## Eclectic12 (Oct 20, 2010)

AFAICT - there's not enough details to be able to track it through fully ... though on a strictly CG POV, it does seem high.

For example, plugging in the $1.8 million into the 2013 tax return for BC on schedule 3, section 2 "Qualified farm property" with a $0 cost base and only the basic deductions results in just over $373K owing. Plugging it in to section 4 "Real Estate" bumps the bill up to just over $395K.


If on the other hand the kids are in Ontario, the same action results in just over $401K owing for the qualified and just over $409K for the RE.


Other sources of income, particularly ones that don't have any withholding taxes to reduce the liability are going to bump up the taxes owing number up ... I say this as it's not clear to me from the wording of the article if the "tax bill" of over $700K was the kid's taxes that year or only what was added by the property sale.


Regardless of the final numbers ... since it wasn't a principal residence for the kids, the capital gains tax on the full $1.8 million is likely far worse than keeping it as a PR for the parents. 

If it been kept that way, it appears that the best case is $0 CG and the worst case seems to be a small CG for the difference between date of death and when it was sold.

http://blog.mti-cga.com/wp/2010/12/deceased’s-principal-residence-but-i-thought-it-wasn’t-taxable/


Then too, if the kids (and ex-spouses) aren't reasonable, there can be lots of problems.
http://retirehappy.ca/use-caution-before-putting-your-kids-on-title-of-your-principal-residence/


Cheers


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## OhGreatGuru (May 24, 2009)

_And the last 2 lines there are still puzzling: if LIF assets are 'not included as an asset of estate', then how does CRA follow 'distribution of assets to recover taxes'...?? Is the LIF then considered an asset of the estate that they will follow? Or are they referring to other assets? .....Just when I think I 'get' it, something else seems unclear._

From discussions on threads dealing with designating beneficiaries for RRSP's, I believe it has been stated that if the estate cannot pay its taxes because the deceased deliberately passed assets to beneficiaries outside of the estate that CRA can and will go after the beneficiaries to pay the estate's tax bills.

PS. the description given by Sags for LIF is similar to what happens for an RRSP where the beneficiary is not the spouse. The RRSP assets are passed to beneficiary outside of the estate. This passes the money quickly without need for probate, and it is not subject to probate fees. But the financial institution issues a T4 for the FMV of the RRSP in the name of the deceased, copied to CRA. This is supposed to be reported as income on the final return of the deceased. So CRA knows about it. And if the executor claims the deceased can't pay the tax bill, they will then ask "Ok, who got the money then?" and go after them. Because the RRSP is a tax-deferral system, not a tax-avoidance system.


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## fraser (May 15, 2010)

Yes, you can transfer title of your home, ie your primary residence, to you son with ZERO tax consequences to you.


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