The increase in the capital gains inclusion rate in Canada from 50% to 66.7% will have significant long-term impacts on business and family owners, particularly when it comes to estate planning and intergenerational wealth transfer. Here are the key points to consider:
The deemed disposition of capital properties at fair market value upon death will result in a 33% higher tax burden for estates, affecting shares in operating corporations and holding companies.
Tax planning has become more crucial than ever to manage the increased estate tax liability effectively.
Life insurance can be an effective tool for business owners to address increased capital gains tax liabilities, particularly in light of the recent changes to capital gains taxation in Canada.
Life insurance can be structured to address various estate planning needs, including covering estimated tax liabilities while preserving other assets for beneficiaries.
Here are some key points:
Life insurance proceeds are generally paid out tax-free to beneficiaries, providing liquidity to cover tax liabilities without triggering additional taxes.
Business owners can benefit from corporate-owned life insurance, which offers lower premium costs due to lower corporate tax rates and the ability to use the capital dividend account for tax-free distributions to shareholders.
Life insurance can help equalize inheritances among beneficiaries when some inherit taxable assets (like a business) while others receive non-taxable assets.
Using life insurance can help avoid potential liquidity crises upon death and provide a tax-efficient means of funding the increased tax obligation.
Utilizing life insurance proceeds to redeem shares that give rise to the estate tax liability can help recharacterize gains and reduce the impact of the increased liability.
Understanding how the new rate affects investments and holdings is crucial for developing effective tax planning strategies.
To navigate these changes, business and family owners should consult with experts in the field to develop tailored strategies that address their specific circumstances and long-term goals.
M Bacal Group can provide a complimentary consultation and analysis of your tax and estate planning. We can also serve as a second opinion if you have already completed your plan.
We use this holistic approach that is centered around you, as a business owner/professional, your business, and family so that you make the most out of your unique situation.
Please connect with us at monette@mbacal.com or 514-769-4643 ext. 222 so we discuss this unique complimentary offer.
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