Capital Gains Protection

Risk Management Capital Gains Protection Will Planning Retirement Income and Estate Analysis Shareholder Agreement Funding Services

There has been no "death tax" in Canada since the early 70's. At that time, the old tax on death system was replaced by a tax on the gain in value of capital property. This tax can sneak up on people and without proper planning, create some unpleasant surprises. Some time ago, we were involved in a case where a couple had bought recreational property years ago. Since then, the property had gained very significantly in value, although of greater importance, it had become the focal point of three generations of family members. The couple who owned it used it for much of the year as a getaway spot. As well, their children and grandchildren made use of it on weekends and holidays. On the death of the first of the two spouses, the ownership of the property would remain with the surviving spouse. On the death of the second spouse, their wills left the property to their children. That's where the trouble lay. On transferring the property to the next generation the capital gains trap is sprung. In simple terms, a calculation is done to determine how much the property has increased in value since purchase. Credit is given for some things like improvements but the fact remains…a significant portion of the gain in value is taxable. In this case, the amount of cash needed would have been much more than would have been available had the situation not been corrected and the family property would likely have been sold to pay the outstanding capital gains tax. This tax trap also exists in the value of a growing business or rental property! As part of an overall estate plan, we can help you identify potential capital gains problems that may be waiting for your family and we can help you find the best way to deal with the problem beforehand.