Sent: Tuesday, November 01, 2005 9:27 AM
To: taxman at centa.com
Subject: Are capital gains applicable?
A person dies in 1995 and estate is settled within 5 years. Investment
property in which deceased had an interest sold 10 years after his death and
funds distributed to beneficieries this month, (approx $8,000. each) . US
beneficiaries will pay capital gains. I called RevCan who advised I don't
pay and not to even declare it on tax form.... hmmm?
As a Canadian resident, do I pay capital gains to USA on amount?
Thanks.
_________________________________________________________________
david ingram replies:
In general, the value of the estate is set at the time of death for Canadian
tax purposes.
The estate pays all taxes up to the date of death.
Then there is a choice. The estate may then carry on making money and
paying the tax with no distributions until terminated or the estate may give
out partial distributions which are taxable to the beneficiaries while the
rest is taxable to the estate or the estate may make full distributions
which are only taxable to the beneficiaries and the estate pays no tax.
The US estate form is the 1041 - The Canadian Estate form is a T-3.
In many cases, the estate is split but not distributed. In the case of real
estate or a stock portfolio, it could have been transferred into your names
but not sold for a while. When it finally sells, the recipients have to pay
capital gains tax on any increase in value.
If it is real estate, there is tax due on both sides of the border. If it
is public shares held in a Canadian stock account, there is no capital gains
tax in Canada for a US investor but the Canadian has to report it on his or
her Canadian return and the American would report it on his or her US
return. The reverse happens if the stock is in a US account. In that case,
the US resident pays tax to the US but the Canadian is exempt from paying
capital gains tax on publicly traded stock in the USA.
In your case, it makes no sense that the US recipients would be paying tax
when you are not. It sounds to me that you are receiving an incorrect
answer from the CRA.
There "is" one other possibility.
Because of the rise in the Canadian Dollar it is possible that in US
dollars, you made a profit but when converted to Canadian Dollars you lost
money.
Let's suppose you inherited $10,000 US worth of stock in 1995 when the
exchange rate was close to 1.5. The $10,000 was $15,000 Canadian.
Today, 10 years later the US stock is worth $12,000 and any US beneficiaries
would have tax to pay on $2,000. However, the $12,000 US is only worth
about $14,400 Canadian and for Canadian purposes you have lost $600.00
Hope this helps
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