James Piper, Author

Thursday, June 9, 2011 Introduction. ... Your Home, Your Cottage, Your Estate Plan ... I f you own a home and a cottage, at some point you will have to decide how to handle these properties in your estate plan. Do you sell your cottage during your lifetime or through your will? Do you give it to your children this year or later or not at all? How do you minimize income taxes and probate fees? And, how do you fund these costs. There is no one-solution-fits-all approach to answering these questions; however, this discussion will explain the issues you need to consider in order to make the right decision for you. To understand the financial consequences and options available, let's start with a common situation. You and your spouse own a home where you live most of the year, but you also spend time at a cottage which you own. You have adult children and, perhaps, grandchildren. Like most real estate the value of these properties has increased over time, and i...

Friday, February 18, 2011 ... no gift tax in Canada, but beware ... W hile at the gym the other day, someone asked me what the limits were for gifting property to his children. I told him there were no limits. "Maybe you're thinking of the U.S. They have a gift tax," I said. I didn't want to bother him about the gift tax details and how it was designed to thwart tax planning for the U.S. estate tax. "So I can give any amount to my kids?" I nodded, "But there's exceptions." Too many I thought. First, I explained under the Income Tax Act how he and his children are related. Dah! Seems obvious, but the act defines who is related and sets out rules that kick in between related persons. When it comes to gifting property from one related person to another, the act says the disposition occurs at fair market value and that means a potential capital gain on the gift. "But I'm giving him cash, how can there be a gain?...

Thursday, February 19, 2009 ... What is your proceeds of disposition on a life insurance policy? ... T he following circumstances result in proceeds of disposition for a policyholder and therefore a potential capital gain: (a) full or partial surrender of the policy, (b) a policy loan, (c) policy dividends, and (d) certain transfers of ownership of the policy. The full surrender of a life insurance policy results in a capital gain equal to the policy's cash surrender value (CSV) less its adjusted cost base (ACB). Where there is a partial surrender, there is a pro-rated capital gain if the total CSV exceeds the ACB. Loan amounts received from the insurer under the terms of the policy are included as proceeds. Loans and debts with third-parties are not included, nor is the assignment of the policy as collateral for a loan or debt. Policy dividends are included as proceeds; however, where the dividend is used to pay premiums, the amount is not included. With certai...

Wednesday, February 18, 2009 ... What is the ACB of a life insurance policy? ... M ost people consider permanent life insurance a tax-free investment vehicle with a death benefit. In many cases that is true; however, there are instances where a taxpayer receives, or is deemed to have received, proceeds of disposition (POD). The result is a capital gain if the proceeds exceeds the adjusted cost base (ACB) and any selling expenses. The ACB of a life insurance policy is defined in subsection 148(9) of the Income Tax Act. While there are a number of factors that go into determining the ACB of a life insurance policy, the two main factors are: premiums paid and something known as the Net Cost of Pure Insurance (NCPI). The premiums paid under the policy increase the ACB and over the life of the policy this amount grows. Where the policyholder receives a dividend from the policy and apply it as a premium, that premium is not added to the ACB. The NCPI is the amount at ris...

Tuesday, February 17, 2009 ... Thinking of buying permanent insurance? ... T here are, broadly speaking, two forms of life insurance: term and permanent. With permanent insurance, sometimes called whole life insurance and other variations, the premiums paid to the insurer create an investment fund for the policyholder. The fund earns investment income and is generally not subject to federal or provincial income tax provided the policy qualifies as an "exempt policy" under the Income Tax Act. The rules on what is or isn't an exempt policy are complex and best left to the insurer; however, before signing a policy be sure the agreement specifies the insurer will monitor your policy's status and they will ensure it maintains its exempt status. Why do this? If your policy loses its exempt status it will be subject to income tax and would therefore create a significant tax problem. Posted 2009/02/17 at 12h06ET in Estate Planning.