Estate taxes, also known as death duties or inheritance tax, are taxes levied on someone’s estate after their death. In Canada, the federal government does not collect estate taxes. But provinces of British Columbia, Manitoba, and Saskatchewan do. The amount of estate tax owed depends on the size of the deceased’s estate. Generally speaking, an estate is made up of all assets owned by a person at their time of death minus any debts they owe (minus funeral expenses). This includes money in bank accounts and insurance policies, investments and stocks, real property such as land or buildings, vehicles and other tangible personal property.
Estate Tax Rules
Estate taxes are generally due nine months after the date of death — though you may be able to request an extension from the CRA if needed. Depending on the province, it may be necessary to file a provincial estate tax return for taxes that are due. In addition to a provincial return, you may also need to complete a federal tax return (for example, when there is income from investments or other sources). The process of filing can often be lengthy and complicated, so it’s helpful to seek the advice of an experienced professional who is familiar with Canada’s taxation system — such as a lawyer or accountant — before beginning the process.
In Ontario, Estate Administration Tax (otherwise known as probate tax or probate fees) is due on the estate of a deceased person. This tax is based on the value of the estate and must be paid by the executor when applying for a Certificate of Appointment of Estate Trustee before the Executor can legally deal with any assets. The amount payable depends on the size of the estate. It applies on estates worth $50,000 or more – $15 for every $1,000 (or part thereof) of the estate value over $50,000. Learn more here.
There are some additional considerations that should be taken into account when it comes to estate taxes in Canada. For example, if an estate includes a deceased’s business or rental property, there may be capital gains tax implications. [If you own a corporation, have your lawyer draw up a secondary will.] In addition, if the deceased had a will and their assets were not distributed according to the terms of that will, then there could be income tax implications for those who received the assets or on the Executor. It is important to seek professional advice from a lawyer or accountant with experience dealing with the taxation system.
Estate Tax Rates
The actual rate of estate taxes in Canada varies by province. For instance, British Columbia levies an eight percent rate on estates worth more than two million dollars while Saskatchewan has no tax at all for estates valued at up to one million dollars. Manitoba levies a six percent rate on the value of an estate exceeding one hundred thousand dollars. When filing taxes in Canada, it’s important to keep in mind that different provinces have different rules and regulations which should be followed carefully.
Ways To Minimize Estate Taxes
Jointly Own Property and Assets
Do you and your spouse have separate bank accounts and real estate? Given that one co-owner will still be alive after your death, you should think about adding one another to each title or account to minimize estate taxes. In this situation, without the need for probate, the co-owner would instantly become the legal owner of the property and/or bank accounts. You should ask your lawyer about adding one of the kids to your property. Caution: not advisable is divorce or bankruptcy is on the horizon.
Stay Under The Limit
Depending on your province or territory of residency, you are not required to pay the estate administration tax on estates worth below a specific level. To keep the value of your estate low, you can leave assets to your spouse, children, or other family members while you’re still living.
Utilize Life Insurance To Cover Costs
If you pass away, you might not be liable for estate taxes, but the estate will unquestionably be held accountable for any unpaid income taxes. If your estate is unable to handle the additional expenses, think about choosing a life insurance policy.
Conclusion
If you have any questions or concerns about estate taxes in Canada, contact a professional who is familiar with the taxation system. They can help guide you through the process and ensure that all your obligations are met — so that you can focus on grieving for your loved one instead of dealing with the financial aspects of their passing. Taking care of estate tax obligations properly may even save money in the long run, as failing to file an estate return can lead to hefty fines and penalties. We encourage you to take the time to understand your responsibilities when it comes to estate taxes in Canada — so that you can rest assured knowing that all of your bases are covered.
