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There’s no hiding from the success tax, but several things can help legally reduce or even eliminate the amount your estate or your heirs pay
The more successful you’ve been, the greater the tax could be. If you have assets that will be taxable when sold or when deemed to have been sold, then you or your estate will likely have to pay some taxes upon our passing.
You don’t actually have to sell something to trigger the tax. You could be considered to have sold it when ownership of the asset changes hands, even if you don’t get any money from the sale. This deemed sale happens upon your death or when you change ownership of a taxable asset by way of gift or transfer.
You should note that selling or gifting an asset at a price that’s less than its fair value doesn’t eliminate this success tax and, in fact, doing so could lead to double taxation.
The first form of the success tax is the tax on deferred retirement asset plans. These plans include retirement savings accounts such as registered retirement plans, personal and spousal plans (RRSPs, SRSP), group retirement savings plans (GRSPs), defined contribution pension plans (DCPPs) and locked-in retirement accounts (LIRAs), assets that were once in a pension plan, retirement income funds (RIFs) and life income funds (LIFs), to name a few.
The tax on these types of assets could be as high as 54 per cent of the value of the account, depending on the total value of your taxable estate and the province you live in.
The second form of the success tax is the deferred or unrealized capital gains tax on capital assets. This includes any item you purchased for one price and sell or are deemed to have sold for a higher price. These items are subject to the capital gains tax when the item is sold or ownership is changed.
The types of assets that could be affected by this form of the success tax include stocks, mutual funds, art, antiques, collectibles, real estate (other than your principal residence), private businesses and, sometimes, bonds.
The tax on these types of assets could be as high as 27 per cent of the value of the asset.
The success tax could also affect you when there’s a change of ownership on any of these assets. That change happens automatically when you die, or if you gift or transfer an asset to another person.
While there’s no hiding from the success tax, several things can be done to help legally reduce or even eliminate the amount your estate or your heirs pay.
Gifting or selling your taxable assets to another person doesn’t eliminate the taxes due. Doing so would likely trigger the success tax before it was due, costing you rather than your estate.
To find out just how you and your estate could be affected by the success tax, you should consult with a financial planner, accountant and legal professional before implementing any tax or estate planning strategies. Your situation, while it may be similar to someone else’s, is unique to you and your family.
While you may not care how much success tax your estate has to pay, you should at least talk to an adviser and find out just how much it could be and what steps you could take to reduce or eliminate this final tax grab.
Bill Green is an hourly financial and estate planner, public speaker and the author of The Success Tax Shuffle. Bill has over 26 years of experience in the financial services industry.
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