| Glossary of
Financial Terms |
| |
 The
Companion Advisor: Taxes
& Estates
Death and taxes - Part 2/7
ACB transfer to spouse not always called for
Sometimes it may not be beneficial to transfer
all mutual fund units to a spouse or spouse trust at their ACB. It may
be preferable to have the deceased's legal representative (for example,
the estate executor) elect to trigger a certain amount of capital gains
on the terminal return. This would be advantageous in situations where
the deceased taxpayer has unused capital loss carry-forwards that would
otherwise expire on death, or has an exempt capital gains balance (ECGB)
that arose as a result of the 1994 capital gains election. These amounts
could be used to reduce the tax on the capital gain that would otherwise
result from the deemed disposition of the units at death.
Example #2
Continuing from example #1, assume Jack had $35,000 worth of capital
loss carry-forwards and a $15,000 ECGB. Nancy is the beneficiary of
the mutual fund units.
If no election is made to trigger a capital gain, the units are transferred
to Nancy's name at an ACB of $150,000. On Nancy's death, assuming
the fair market value of the mutual fund investment remains constant
at $250,000, Nancy's estate will realize the capital gain of $100,000
and will be liable for taxes of up to $23,000 (in Ontario).
On the other hand, if the executor of Jack's estate had elected to
report $50,000 of capital gains on Jack's terminal return, this $50,000
can be reduced by applying both the capital loss of $35,000 and the
remaining ECGB of $15,000 against the elected gain. Because Nancy
is the beneficiary of the mutual fund investment, she will acquire
the units with a total ACB of $200,000. On Nancy's death, the resulting
capital gain would be only $50,000, attracting tax of up to $11,500.
If Jack's executor elected to trigger the appropriate amount of capital
gains, savings to the final estate of both Jack and Nancy would be
up to $11,500. |
The information in is article
is subject to change, therefore be advised its content should be viewed
as illustrative to the context of the article. Income tax laws change
over time therein rendering certain numbers quoted obsolete. Please
consult current tax rules or directly at CCRA
|
|
Use this link to load a printer-friendly
version of this document. |
* * *
Questions about the above send e-mail to:
moneyman@fiscalagents.com
©
, Fiscal Agents Money Management Newsletter
25 Lakeshore Road, Oakville, On L6K 1C6.
(905) 844-7700
|
|
|
