Tax Treatments – Gifts and Inheritance in Canada

A tax is usually charged when there is a transfer of assets in a province or territory of Canada. This includes gifts, inheritances, bequeathing and others. Usually there is no additional inheritance tax charged on the beneficiaries; instead the estate pays whatever tax is owed by the province or territory. In some cases the province or territory will refund the tax paid in total or part.

The inheritance tax in Canada differs from the inheritance tax in the United States. In the United States a gift death test is usually applied but not in all Canadian provinces and territories. If you are planning to make an estate with funds from a living trust then Canada has special rules that apply.

In Canada, if a property is transferred to someone other than the deceased it normally means one of two things. One, it is a gift. Two, it is a gift that happens to have been inherited and resident inherited properties do not pass away under this provision. An exception comes if the property is transferred to a resident of the province as part of the testation of presence. The testation of presence provision does not apply to gifts. These are exceptions to the general rule that Canadian inheritances include all capital gains taxes that were payable on the property at the time of the death.

When a Canadian estate is created it may be a testament to the presence of a common-law partner or to a joint-venture. If the person who died is a surviving spouse then there is a provision in the bill that allows for the designation of an individual to act as the executor of the estate. The individual may be anyone the surviving spouse chooses. He or she must file all applicable taxes with the provincial government to be entitled to the inheritance tax on behalf of the surviving spouse.

There are also special provisions that apply to estates with more than one person who is named in the Will. Generally speaking, the person who is actually named in the will is entitled to receive the entire inheritance. However, the person who is not so named but who is related to the deceased through blood or marriage is usually left out of the equation. The amount of inheritance that the person is entitled to is usually dependent upon their net worth at the time of death. This means that even if a person dies very soon after making an estate tax payment, the amount of taxes that they would owe is generally smaller than what they could owe if they were left out of the equation.

In some cases, when a person dies intestate there can be some confusion as to whether the property that has been transferred is an asset or liability. Most people believe that the property that is transferred to a surviving spouse is an asset, since it is the basis for all future claims to that property. However, this is not always the case. For example, property that a person transfers to their children after they die is generally not considered an asset since it is not an obligation that can be enforced against an heir. If the child who receives the property becomes unable to maintain it, there may be a claim to the property from the heir.

There are several ways to reduce the tax burden on gifts and inheritances. One of them is to designate all gifts as gifts rather than as inheritances. This allows the gift to be designated as a taxable item and thus meet the requirements for tax deduction. Another option is to include the cost of any improvements that have been made to an inherited property during the ownership period. These improvements could be written off against tax. In addition, certain property can be exempted from inheritance taxation if it is used exclusively for the benefit of the family and if it is not inherited by anyone else.

One area that many people do not consider when considering gifts and inheritance is capital gains and dividends. These taxes are charged according to the difference between the market price at the time of the sale and the market price at the time of the purchase. There are also estate taxes in Canada. If a Canadian has made some improvements to his or her inherited property, capital gains and dividends are usually not required.

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Keith Rainz

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