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My uncle passed away last year, and named me as a beneficiary, as well as an executor. My lawyer is on vacation so I can’t ask him my questions (for a couple weeks).

I was just wondering how much taxes we could expect needed to be paid out of the estate to the government. The estates assets are as follows:

RRIF: 98 000
GIC/stocks/bonds: 140 000
house sale (primary residence at time of death) 160 000
other stuff (personal vehicle, cash, house contents): 35 000
TOTAL VALUE: 430 000-ish

Now I understand the RRIF’s will be taxed heavily, but what about the other items, like the GIC’s, stocks, bonds, house, etc? Do they count as income, and if so, will the taxes due be really high? Any idea as to roughly how much will be taken by the government would be helpful.

Oh ya, I live in Ontario, Canada.

Thanks a bunch!!

1 Thought on Estate tax question?
  1. Reply
    Kenneth Keung
    July 17, 2012 at 1:24 am

    Word of caution: death brings many complicated tax issues. I highly recommend you to seek a qualified tax accountant. However, I will briefly go over some of the key areas for you.

    Upon death, your uncle’s last taxation year was deemed to have ended. A personal tax return (called a Terminal T1) will have to be filed covering the income earned during this last taxation year. The taxes payable is calculated in the same way as any other live individual, ie. graduated tax rates, various tax credits, etc. Also, since a taxpayer is deemed upon death to have disposed of all of his properties, these income would include:

    RRIF:
    Assuming your uncle has no spouse, or disabled children, the whole RRIF ($ 98,000) becomes taxable income to him upon his death and reported as such on the Terminal T1.

    GIC/bonds:
    Interest income up to death will have to be reported on the Terminal T1. Normally, there is no capital gain on these to report.

    Stocks/mutual funds:
    Capital gain to report on the terminal T1 is fair market value on date of death – (cost of the stock, less any return of capital). Only 50% of the capital gain become taxable income.

    House:
    Assuming your uncle lived in the house throughout the whole time he owns it, the gain on the house is tax-exempt under the principle residence exemption.

    Other stuff:
    All these are also deemed to have been disposed upon death at fair market value. But these are personal used properties and accordingly, any gain is tax exempt. Exceptions are special collectable items like stamps, coins, paintings.

    Any other earnings during his last taxation year:
    These are calcuated just like for any life person.

    To estimate how much tax the estate will be paying on the Terminal T1. Estimate the taxable income based on the above and calculate the tax payable based on the normal graduated tax rates. The highest marginal tax rate in Ontario is 46.41%, for income above $ 120K.

    You can also ask your accountant whether filing an optional Rights or Things Return would reduce the tax payable for your uncles’ last taxation year.

    If your uncles’ will involve setting up a trust, then annual trust returns will have to be filed for the trust.

    Finally, I would refer you to the CRA’s website for this topic:
    http://www.cra-arc.gc.ca/tax/individuals/life-events/death/menu-e.html

    Good luck. And don’t forget to hire qualified help.

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