The Final Tax Act: Why 50% Avoid It and What to Do About It

Evelyn Jacks

Some things don’t change, despite the two certainties in life:  death and taxes.  What are they?  The preparation of a will and estate planning.  Half of Canadians surveyed five years ago still haven’t done it, according to the Angus Reid Institute, but now there is a compelling trigger to make it happen: the proposed June 25, 2024  increase to the capital gains inclusion rate. Here’s why:

The Backdrop.  Half of Canadians say they do not have a will, while a further one-in-eight (13%) has one that is out of date. Approaching two-in-five (37%) Canadians say they have an up-to-date last will and testament.  As people age, they are more likely to have one – 71% of those over 65; 49% of those age 55 to 64. 

But only 23% of people in the age of 35-44, the key child bearing years, have a will.  The empty nesters – 45 to 54- aren’t much better at this – only 34%.  Yet, they are the key caregivers of their elderly parents.  Should something happen to these younger folks, age 35 to 54, serious family and financial consequences will occur.  Wills and estate planning in other words, are critical for all members of society.

Why We Don’t Do It.  Generally speaking, we live in the present;  estate planning is something far off in the future.  We think we’re too young to have to worry about it.  Another key reason:   it takes time, effort and money to get the documentation together and provide the instructions for the people together will eventually deal with the reality of cleaning up after our “final self”. . . all good reasons to put it off to the future.  

Why We Need To.  There are two key reasons to act:  to make it easy for our loved ones to do a job we can’t do for ourselves, no matter how independent we are; that is, to dispose of the body and transfer possessions to others.  But there is a tax reason not to put will and estate planning off and that often becomes the key trigger:  taxes payable at death.   Most people want to leave more to their heirs than to the government,  and now there is a reason why that’s more challenging:  

On June 25, 2024 individuals with accrued capital gains over $250,000, as well as corporations and trusts will be subject to a higher capital gains inclusion rate:                 

66 2/3% rather than 50%.

Deemed Dispositions at Fair Market Value.  While new capital gains taxes were introduced in the April 16 Federal Budget as affecting only a few taxpayers, the reality is that there is a deemed disposition of all taxable assets at death, and that effects most investors, business and property owners.  Trust planning has also been significantly affected.

For couples, there is a possibility to roll assets over to a spouse at an amount between adjusted cost base and fair market value of the assets.  This provides a way to minimize tax at death and bump up cost bases for the survivors to mitigate tax in the future, if capital losses are properly harvested and used.

When the last surviving spouse dies, however, the tax hammer hits:  capital gains are triggered before the balance of the estate, is transferred.  Planning now in light of the higher capital gains inclusion rates is critical to understand how much will actually be left to pay for the taxes and avoid selling important family assets – like cottages, for example.

Get Started to End Well.  Make sure you book a call or visit to a qualified tax accountant and your legal advisor.  Get that will done and keep it up-to-date.  In the process, save the money to pay the fees – and much more – by getting the curtain for your final tax act to fall on the side of your loved ones or your community, if that’s your choice.