New Lifetime Capital Gains Exemption – an increase in the max amount.
Part of doing an evaluation of life insurance needs is looking at your tax situation in the event of death.
A big part of tax liability can be the result of owning shares in a privately held, incorporated business. The business for which you worked hard, took risks and where you put your heart and soul. The business that served you well in supporting you and your family.
50% Capital Gains Inclusion Rate
In the event of your death, 50% of the capital gain on those shares will be taxed personally. This could place a great cash need burden on your estate. And cause a stall on the transfer or even force the liquidation of the business, to pay for the taxes.
CRA does allow for a spousal rollover of these shares, so if bequeathed to your spouse, then the capital gains taxes will be due only after both of you die. But it doesn’t allow for a rollover to generations. When your children inherit the shares, your estate or your spouse’s estate will be responsible for the tax bill and taxes will be due. If you sell the shares to someone else, upon death, like a partner, then the taxes are due.
CRA also exempts a certain maximum amount of these gains (there are rules) from being included in the calculation. Which means no taxes on this exempt amount.
And that is where there is good news in the recent Federal budget. This exempt amount will increase.
New Limit
If you are the owner of shares in a privately owned corporation, starting for the tax year of 2014, the Capital Gains Exemption will be increased from $750,000 to $800,000. And thereafter, the exemption will increase by inflation.
Very good news if you own a small/medium sized business.
Estate planning often includes life insurance bringing instant liquidity into your estate to cover the captial gains tax bill not covered by the exemption.
Disclaimer – Everyone is different. So please seek professional advice about your personal situation. These blog posts are meant to be helpful as generalities, and your personal situation needs to be addressed individually by professionals. Best Jane.