No Estate Taxes for (Chess Players)

[Henry Chiu]

I am reposting some posts from the old board to here as they are in danger dropping off.

Taxes can be grouped under these general categories:

1) Taxes on sales
2) Taxes on income
3) Taxes on capital gains
4) Taxes on capital

When people think of estate taxes, they are generally referring to taxes on capital. I believe the US has estate taxes (taxes on the deceased's capital assets). The Canadian federal government does not levy taxes on the capital assets. Many provincial governments levy probate taxes. These are taxes on capital.

Our federal government levies taxes on the deceased's income up to the date of death. Any income after the deceased's death is the income of the estate. The estate would pay income tax on it prior to distribution.

Our federal government also levies taxes on any (non-exempted) capital gains accrued by the deceased up to the date of death. All capital assets held by the deceased are deemed to be disposed at fair market value on the date of death. Many people mistakenly called these estate taxes.

For further information re the capital gains, please refer to Chapter 4 of Canada Revenue Agency's booklet called "Preparing Returns for Deceased Persons"

http://www.cra-arc.gc.ca/E/pub/tg/t4...tml#P626_77665

[Henry Chiu]

Death & Taxes

If the bequeath is made in the will, then the donation is deductible on the final T1 return. If the bequeath is not made in the will and if the beneficiary wants to make a donation to a charity, the receipt should be made out to the name of the beneficiary. The beneficiary can then deduct it on his/her T1 return. The receipt should not be made out to the "Estate of ...". In that situation, it can only be deducted against income on the estate's T3 return. There is usually not enough income on the T3 to absorb all the donations.

From CRA's booklet called "Gifts and Income Tax"(P113), the "Gifts in the year of death" section.

http://www.cra-arc.gc.ca/E/pub/tg/p1...tml#P143_15004

"... you can claim the eligible amount of gifts that the person gave in the year of death including those that the person bequeathed in the will. You can claim the lower of 100% of the deceased person's net income, or, under proposed changes, the eligible amount of the gift(s) donated in the year of death (including gifts by will),? Any excess can be claimed on the return for the previous year (up to 100% of the deceased's net income for that year).

You may be able to claim a charitable donation tax credit on the deceased person's return for a donation of a direct distribution of proceeds to a qualified donee who is the designated beneficiary of a registered retirement savings plan (RRSP), including a group RRSP, a registered retirement income fund (RRIF), or a life insurance policy including a group life insurance policy. This does not apply if the qualified donee is a policyholder under the life insurance policy or is the assignee of the life insurance policy. "

From the definitions section:

http://www.cra-arc.gc.ca/E/pub/tg/p1....html#P72_1755

"Eligible amount of the gift - This is the amount by which the fair market value (FMV) of the gifted property exceeds the amount of an advantage, if any, received or receivable for the gift.

The advantage is generally the total value of any property, service, compensation, use or any other benefit that you are entitled to as partial consideration for, or in gratitude for, the gift. The advantage may be contingent or receivable in the future, either to you or a person or partnership not dealing at arm's length with you."

[Henry Chiu]

Stock Donations to Charities

Another good strategy would be to donate stccks. Normally, capital gains must be reported at a 50% inclusion rate. Capital gains on stocks donated to a charity only needs to be reported at a 0% inclusion rate. Stocks can be gifted from the will. This 0% inclusion rate also applies to donations before death.

http://www.cra-arc.gc.ca/E/pub/tg/p1...tml#P266_35099

"If you donated certain types of capital property to a registered charity or other qualified donee other than a private foundation (see Note below), you may be entitled to an inclusion rate of zero on any capital gain realized on such gifts.

The inclusion rate of zero applies if you donate the following property:
- share, debt obligation, or right listed on a designated stock exchange;
- share of the capital stock of a mutual fund corporation;
- unit of a mutual fund trust;
- an interest in a related segregated fund trust;
- prescribed debt obligation; and
- ecologically sensitive land (including a covenant, an easement, or in the case of land in Quebec, a real servitude).

If you did not receive an advantage in respect of the gift, the full amount of the capital gain is eligible for the inclusion rate of zero. However, if you received or are entitled to an advantage, only a portion of the capital gain is eligible for the inclusion rate of zero. The remainder is subject to an inclusion rate of 50%."

[Henry Chiu]

Death of a Chess Player

Mr. A is a wealthy chess player. He named his wife, Mrs. B, to be the executor and sole beneficiary of his $1 million estate. Unknown to his wife, he also named a young and attractive chess player, Miss C, as the beneficiary of his $1 million RRSP.

Gifts are not considered income (for income tax purposes) in the hands of the recipient. Miss C would not need to pay any income taxes on the RRSP proceeds.

The balance of Mr. A’s RRSP account must be reported on his final T1 return as income. Let us say that the RRSP income was Mr. A’s sole income in the year of death. Let us assume that he needs to pay 45% combined federal & provincial income tax on this income.

Income tax liabilities are considered debts of the estate. The CRA must first be paid before any residuals can be distributed to Mrs. B.

Results:

Miss C: $1 million
CRA: $450,000
Mrs. B: $550,000

[John Henry]

Re: No Estate Taxes for (Chess Players)

tell me as a tax expert-can a family write off a Chess Camp? A 1/2 day or full day Camp has physical activity-they usually go to a field to play soccer,baseball etc.for an hour or two?Thanks....

[Egidijus Zeromskis]

Re: No Estate Taxes for (Chess Players)

tell me as a tax expert-can a family write off a Chess Camp? A 1/2 day or full day Camp has physical activity-they usually go to a field to play soccer,baseball etc.for an hour or two?Thanks....

I am not tax-expert; only the father. When I looked through requirements for the Camp to be deductible: it is the work for the Campus administration to prove to somebody that their camps have enough physical activity. Then the Camp can issue a receipt what would be a prove for a tax-man.

more details about the Tax line:
http://www.cra-arc.gc.ca/tax/individ...390/365-e.html
http://www.cra-arc.gc.ca/whatsnew/checklist-e.html

[Henry Chiu]

Estate of a Chess Player?

RRSP, and life insurance policies are not considered part of the estate if a person rather than "the estate" is named as the beneficiary. Properties held in joint tenancy are also not considered part of the estate. The estate is everything else.

Because of the above legal definitions, the Income Tax Act require separate laws to attach tax liabilites to joint tenants and RRSP beneficiaries. Otherwise, CRA will lose out if the estate goes bankrupt in the process of paying off tax debts.

In practice, I believe the banks withhold 10% of RRSP withdrawals for tax purposes. This can be applied to the deceased's tax debts. In case the CRA is not able to collect from the estate, the RRSP beneficiary has joint & several liability for the tax pertaining to the RRSP withdrawal. I believe the estate still has primary responsibility for paying the tax pertaining to the RRSP. The RRSP beneficiary can try suing the estate to recover the 10% withholding tax.

From Interpretation Bulletin IT-500, paragraph 14:

"Where an annuitant dies, subsection 160.2(1) provides that the recipient (including the estate of the deceased) of a tax-free amount out of or under an RRSP (see ?12 above) is jointly and severally liable with the deceased annuitant for a portion of the deceased's additional tax payable that arose because the amount was included in the deceased's income under subsection 146(8.8). This joint and several liability is equal to the proportion of such additional tax to the deceased that the recipient's tax-free share of the RRSP amount is of the total of the RRSP amounts included in the deceased's income for the year of death under subsection 146(8.8)."

http://www.cra-arc.gc.ca/E/pub/tp/it...tml#P170_20685


If there are children involved, I do not believe the estate laws guarantee the spouse at least half of the assets in the estate.

[Henry Chiu]

Chess Camp

I agree that it would likely be not deductible on line 365 as a "Children's fitness amount". The key word is "significant".

"require significant physical activity (generally, most of the activities must include a significant amount of physical activity that contributes to cardiorespiratory endurance plus muscular strength, muscular endurance, flexibility and/or balance)."

You may try claiming it as a child care expense on line 214 if it meets all the requirements.

"You or your spouse or common-law partner may have paid for someone to look after your child so one of you could earn income, go to school, or conduct research in 2007. The expenses are deductible only if, at some time in 2007, the child was under 16 or had a mental or physical impairment. Generally, only the spouse or common-law partner with the lower net income (even if it is zero) can claim these expenses."

http://www.cra-arc.gc.ca/E/pub/tg/50...ml#P873_109121

From Form T778, page 2:

"You can claim payments for child care expenses made to: ... day camps and day sports schools where the primary goal of the camp is to care for children (an institution offering a sports study program is not a sports school);"

http://www.cra-arc.gc.ca/E/pbg/tf/t778/t778-07e.pdf

"an institution offering a sports study program is not a sports school" means that the primary purpose of a chess camp could be child care despite its name.

[Ed Seedhouse]

Re: Chess Camp

I agree that it would likely be not deductible on line 365 as a "Children's fitness amount". The key word is "significant".

"require significant physical activity (generally, most of the activities must include a significant amount of physical activity that contributes to cardiorespiratory endurance plus muscular strength, muscular endurance, flexibility and/or balance)."

As if the activity of the brain weren't purely physical! The brain consumes something like 20% of the body's entire energy, the equivalent of a 20 wat light bulb.

There is no scientific evidence that anything other than physical activity is going on in the brain.

Of course they really mean "muscular effort", but they use the word "physical" and I'd like to see a good lawyer who understands a little physics argue the case.