Difference between revisions of "Taxation: RRSP & RRIF & TFSA (16:XIII)"
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== A. RRSP: Registered Retirement Savings Plan == | == A. RRSP: Registered Retirement Savings Plan == | ||
In British Columbia, a person may by will gift a property which he or she is entitled at law or in equity at the time of his or her death. This means that the proceeds from a deceased’s Registered Retirement Saving Plan (“RRSP”) can be distributed to the beneficiary | In British Columbia, a person may by will gift a property which he or she is entitled at law or in equity at the time of his or her death. This means that the proceeds from a deceased’s Registered Retirement Saving Plan (“RRSP”) can be distributed to the beneficiary outside of the will if a valid beneficiary designation has been made. However, please note that the deceased's estate will likely need to pay taxes on the value of the RRSP, as at the deceased's date of death. This will be taxed as the deceased's income for that year. | ||
A person is “deemed” to have disposed of all assets at the moment before death, and is accordingly taxed in the year of death as such. For example, if the deceased owns a rental property, then that rental property is considered sold at the moment of the deceased’s death and as a result, the deceased | A person is “deemed” to have disposed of all assets at the moment before death, and is accordingly taxed in the year of death as such. For example, if the deceased owns a rental property, then that rental property is considered to be sold at the moment of the deceased’s death and as a result, the deceased may have earned capital gains from this deemed disposition. Taxes will then be paid on these capital gains. | ||
Additionally, the value of any RRSP or RRIF will also be considered to have been earned in the year of death. This is significant because the inclusion of all these capital gains will most likely bump the deceased to the highest tax bracket. In B.C., this bump could mean that an individual is taxed close to 50% of the income. | Additionally, the value of any RRSP or RRIF will also be considered to have been earned in the year of death. This is significant because the inclusion of all these capital gains will most likely bump the deceased to the highest tax bracket. In B.C., this bump could mean that an individual is taxed close to 50% of the income. | ||
The major exception to this rule is the “spousal rollover” rule in section 73 of the Income Tax Act (“ITA”). This rule effectively defers payment of taxes owing from the deemed disposition if the asset is given to the spouse of the deceased until the death of the spouse. | The major exception to this rule is the “spousal rollover” rule in section 73 of the Income Tax Act (“ITA”). This rule effectively defers payment of taxes owing from the deemed disposition if the asset is given to the spouse of the deceased until the death of the spouse. | ||