Canadians ill prepared for the great wealth transfer, says survey

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Many Canadians are expecting some form of inheritance related to what’s known as the “great wealth transfer,” but a lot of them are unsure of what tax obligations come along with it.

About $1 trillion is expected to be handed down to younger generations in the next few years, according to Chartered Professional Accountants Canada, in what will be the largest wealth transfer in Canadian history as the silent generation and baby boomers hand the baton to their children.

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Almost 60 per cent of Canadians expect some form of inheritance, but just 33 per cent have a good understanding of the tax considerations, according to a new survey by H&R Block Canada Inc.

“Money received from an inheritance is not considered taxable income by the Canadian Revenue Agency (CRA). This means that Canadian beneficiaries don’t have to pay taxes on that money or report it as income on their tax return. But that doesn’t mean that inherited assets are tax exempt,” Yanick Lemay, a tax expert at H&R Block Canada, said in a release.

“When an individual dies, the CRA treats the deceased’s assets — such as real estate, investments and registered savings plans — as if they were sold at fair market value at the time of death. This means that the deceased’s ‘estate’ pays any taxes owed to the government.”

It may seem taboo, but he believes Canadians need to have discussions with their loved ones about finding ways to minimize the tax burden of an inheritance.

“It’s important to understand and forward plan around tax-friendly ways to pass money and assets onto loved ones,” he said. “For example, there are significant tax exemptions for spouses or common-law partners, gifting prior to death, leveraging tax-free life insurance, maxing out tax-free savings accounts (TFSAs) and setting up trusts.”

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H&R Block Canada said Canadians should be aware that they may be liable for taxes on capital gains from property, taxable income from retirement savings accounts and probate fees against a deceased’s estate, among other taxes they face.

It recommends people gift some money or real estate before death, add a family member for joint ownership of an asset or shift more savings into a TFSA to avoid some of the tax burden on inheritance.

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Canada’s inflation rate rate jumped to 2.6 per cent in February, after Canada’s tax holiday ended in the middle of the month.

The removal of the tax break drove prices higher in most sectors, according to Tuesday’s data from Statistics Canada. The Bank of Canada expected an inflation bounce back when the break ended, but the reading marks the first time since October that inflation has ticked above the central bank’s target of two per cent.

The data now has more economists thinking the Bank of Canada may pause interest rates at its next meeting, though several important economic numbers are still to come.

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Read more here.

• 2 p.m.: United States Federal Reserve rate decision
• Saskatchewan to release its provincial budget
• Earnings: General Mills Inc., Universal Corp., AutoCanada Inc.

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When it comes to using a tax-free savings account (TFSA) to pay down a mortgage, there are several factors to consider, including job security, home equity and investing strategy, as Allan Norman, certified financial planner with Atlantis Financial Inc. writes. Read more here. 

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Is the trade war having an effect on your finances? Are you making different decisions about your spending or saving habits? Is it changing your retirement math or portfolio construction? Do you see bigger plans like buying a house or starting a family slipping through your fingers? If yes, drop us a line at wealth@postmedia.com with your contact info and we’ll find some experts to help you out while writing a Family Finance story about it (we’ll keep your name out of it, of course).

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Today’s Posthaste was written by Ben Cousins, with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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