Peter Boys, Boys Financial Services

Watch For These Estate Planning Tax Issues

estate planning


Many of us ditch our tax records after seven years not understanding this could cause tax issues in the future. We often run into situations when working with farm and small business clients where better record keeping would save a lot of detective work!

Gifts and inheritances: Say for example you would like to gift some property to a child for $1. Unfortunately it’s not that simple, because it’s considered to be a deemed disposition equal to its fair market value, and as such is taxable to the recipient. The same applies on death unless left to a spouse. As long as you own the property it’s best to keep a copy of the schedule from the donor’s or deceased’s tax return indicating the reported proceeds.

Calculating the Adjusted Cost Base (ACB): Most accounting firms don’t keep their client’s tax records forever, so figuring out the ACB may require scouring through old records. So for that land you bought back in 1970, record what you paid for it and keep all renovation and construction receipts to record any improvements made to the property. Here is where maintaining a continuity schedule for your investments and other assets, along with supporting documents of the original purchase price and adjustments to the cost base for tax purposes.

Keep those old election forms: Tax elections filed in the past can affect your taxes in the future because you could inadvertently report an incorrect capital gain. It’s wise to keep a copy of those old tax election filed in a safe place until all properties related to the election are disposed of.

Check your CPP benefits: Before you garbage your old tax returns, it’s best to confirm your CPP contribution history with Service Canada to ensure all of your contributions have been counted towards your future pension payouts.

Claiming Allowable Business Investment Losses (ABIL): For loans or investments that you made in shares of a small company that is now insolvent, you may be able to claim half of the loss on your tax return as an ABIL. Retain all documentation relating to any investment or loan for at least six years after making the claim.

Be aware of taxpayer relief provisions: It’s possible to ask CRA to waive interest and penalties, permit a late-filed election, accept an amended return, or issue a refund beyond the typical three-year period. So, you should keep supporting documentation for 10 years. I got hit with a large tax re-assessment when I was a farm equipment dealer and got them to allow me to pay it in reasonable instalments just by asking.

Beware corporate capital gains: Capital gains realized after 1971 are subject to tax, so ideally it’s best to keep corporate tax returns from 1972 onwards. Consider the capital dividend account. Under certain circumstances, an election can be filed to pay out the tax-free portion of capital gains realized by a private corporation to its shareholders, so make sure any such payouts are recorded in detail in case of future tax audits.

This is a short list of some of the issues we run into when working with clients. As the old saying goes “An ounce of prevention is worth a pound of cure!”

Take the time to sit down with an experienced financial advisor, and find out ways to send less of your money to CRA!


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