There are no specific death or inheritance taxes in Ontario. However there are three other taxes triggered by your death, Capital Gains tax; Tax on R.R.S.P. and R.R.I.F.; and probate fees.
Capital gains tax arises because Canada Revenue Agency deems that you sold all of your capital property the day before you died. Your estate must pay the taxes on capital gains subject to your lifetime exemption from capital gains on qualified small business shares and qualified farm property. You can defer capital gains taxes by transferring capital property to your spouse on your death. These taxes remain deferred until your spouse disposes of the capital property or until your spouse dies. The home you use as your principal residence is exempt from any capital gains taxes owing on your death. However, you can only have one principal residence so if you own a house and a cottage, you should designate the property with the greater capital gain as your principal residence.
You can transfer your R.R.S.P.s or R.R.I.F.s into your spouse’s R.R.S.P., R.R.I.F. or registered pension plan for a dependent child or grandchild without triggering payment of the deferred tax. This deferral of taxes continues until your spouse, grandchild or child disposes of the investment or dies.
Your tax-sheltered investments in Registered Retirement Savings Plans and Registered Retirement Income Funds lose their tax deferred status on your death, unless they are transferred or rolled over to your spouse, and the tax on these investments must be included in your final income tax return.
Ontario probate fees are currently calculated as $5.00 per $1,000.00 of the estate’s value up to $50,00.00, and $15.00 per $1,000.00 value above $50,000.00 and they are payable when the Executor files the Application for probate with the Court.
You can avoid paying probate fees by excluding certain assets from your Estate by making your spouse the beneficiary of your life insurance, R.R.S.P.s and R.R.I.F.s; by transferring your property to your intended beneficiary before your death; by holding assets like real property or bank accounts jointly with your intended beneficiaries; by creating a trust which permits you to access your income and capital during your lifetime, but passes it to your beneficiaries on your death; by preparing multiple Wills if you have assets in more than one jurisdiction; or by preparing separate Wills for assets requiring probate and another for assets which do not require probate. Recent Court decisions concerning the transfer of assets to a joint account make it very important to provide clear unequivocal evidence of your intention to confer a benefit on the joint account holder.
You may also consider purchasing life insurance to cover your estate’s anticipated tax liability, or you may make charitable gifts in your Will which will result in tax credits; or you can use up any unused R.R.S.P. contribution room until you are age sixty nine years. If your spouse is aged sixty nine years or younger, your Executor can make a contribution to a spousal R.R.S.P. within sixty days of the end of the year or the date of your death. Your Executor can then claim a deduction for the amount of the R.R.S.P. contribution on your final income tax return.
Please Note: This information is not intended to contain advice specific to your situation. There are no cookie cutter solutions. After all, you are reading this information on the internet. Your situation is special and unique and you must be guided by specific individual advice from your Lawyer, Certified Financial Planner or Accountant.
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