The Federal Budget 2024 introduces pivotal changes that target many of the financial strategies of
Canada’s wealthy. With the proposed increase in capital gains inclusion rates, it is crucial to
understand how these changes affect your estate planning. Here are several strategies to
efficiently manage and effectively plan for the transfer of your wealth while also minimizing tax
liabilities:
1. Reevaluate Investment Structures
For individuals in Canada, considering investments like segregated funds—investments under the
Insurance Act that provide principal guarantees—will be beneficial. These types of investments can
offer creditor protection and can have preferential tax treatment compared to regular nonregistered investments such as stocks, and rental properties. They can also bypass probate.
Consider the transfer of assets before the increase proposed for June 25, 2024.
2. Life Insurance and MTAR Strategies
Life insurance proceeds are generally tax-free upon your passing, providing a liquidity boost to the
estate which can be used to pay taxes, debts, and other obligations without the need to sell other
assets.
Purchasing a permanent life insurance using MTAR (Maximum Actuarial Tax Reserve) to cover
expected estate taxes is a common strategy. This can ensure that heirs receive the intended
amount of assets without the burden of significant tax payments from the estate, providing a tax
shelter for assets now, and the ability to get funds from your corporation on a tax-free basis.
3. Gifts and Transfers Before Death
Transferring wealth during one's lifetime can reduce the taxable estate. However, it's important to
consider that this might trigger capital gains taxes for you now if the gifted assets have appreciated
in value.
4. Maximize Capital Gains Exemptions
Ensuring that the principal residence exemption is fully utilized can reduce capital gains tax. This
involves ensuring that the property qualifies as a principal residence and considering strategies
around the designation of such properties.Using your Lifetime Capital Gains exemption for eligible individuals (e.g., those with qualified small
business corporation shares or qualified farm or fishing property), leveraging this exemption can
significantly reduce capital gains tax. If you have been considering doing an estate freeze utilizing
your Lifetime Capital Gains exemption, now is the time to review whether this strategy will work for
you.
Transferring assets to a family trust can help manage and distribute wealth without incurring the
same taxes as direct inheritance under an estate.
6. Spousal Rollovers
Assets transferred to a spouse upon death can generally be rolled over at the deceased's cost
basis, deferring the realization of any capital gains until the spouse sells the assets or passes away.
Consider how the ownership of your assets are structured to ensure your estate plan has factored
in how the spousal rollovers will be used upon your passing.
7. Charitable Giving
Leaving a portion of the estate to charity not only furthers philanthropic goals but also can result in
significant tax credits for the estate, potentially offsetting taxes due on other transferred assets.
8. Professional Guidance
One of the most important things you can do is to consult with professionals including your estate
planner, accountants, and lawyers on upcoming changes and how they affect your estate both now
and in the future. As you can see from the Budget announcements this week, laws and regulations
change, and professional guidance is essential to navigate the complexities of estate planning and
to adapt strategies to any new tax reforms.
In sum, affluent Canadians need to proactively plan and adjust their estate planning strategies in
light of evolving tax landscapes, especially concerning capital gains. Careful planning now can
mitigate the tax impact on their estates and ensure a smoother transfer of their legacy to future
generations
