David A. Altro is a frequent contributor to Paul Delean’s business column in the Montreal Gazette. Click here to view the article online or scroll down to read David’s answer to the second question.
Tax strategy: Transferring U.S. property can be costly
Monday, January 21, 2013
What happens to RRSPs when the owner dies and how to transfer property in the U.S. were among the topics raised in the latest batch of reader letters. Here’s what they wanted to know.
Q: In a column earlier this month you said that if you die without a spouse, the government will be a major beneficiary of any money remaining in an RRSP. Does that mean that, for a widow like myself, the RRSPs won’t go to the inheritors specified in my will?
A: There were a couple of questions in a similar vein after the column, so we’ll try to clear up any confusion. Generally, if you die with an RRSP and have a wife, common-law partner, dependant children or grandchildren, or financially-dependant infirm children or grandchildren, the assets can be rolled over to them with no immediate tax consequence. But if you’re single and childless (or your children are grown), the RRSP suddenly becomes taxable income when you die. The fair market value at the time of death must be reported as income on your final tax returns. If the RRSP is still worth a lot, your estate likely will owe the government a sizable amount of tax. Your inheritors will get some of the proceeds, but only what remains after the government takes its cut.
Q: We have owned a condo in Florida for a long time, but because of advanced age and some medical issues, we intend to turn the title over to our son as an early inheritance. What are the tax implications, if any?
A: Cross-border tax expert David Altro says turning over the title to the Florida property could trigger significant tax liability. “Under Canadian tax law, such a gift would be a disposition,” he said, and the increase in value would represent a capital gain, which is 50 per cent taxable. In the U.S., any gift of real estate by non-residents is subject to gift tax (35 per cent in 2012) in the hands of the donor, if the amount of the gift exceeds the annual gift tax exemption ($13,000 a year in 2012).
Q: Further to your recent item about Canadians receiving their pensions in the U.S., I thought I’d share something I learned on this subject. A friend of mine who’s living in the U.S. after his company relocated there turned 60 last year and jokingly emailed me that the Quebec government started sending him a gift every month. Apparently QPP started sending him his Quebec pension payment without him applying. This gentleman works in a high-paying executive position and never requested the pension money as he doesn’t need it.
A: Your friend may not be telling you the whole story. To get QPP, for which the earliest eligible age is 60 (with penalties), you need to apply for it. He may well be getting “a gift” he doesn’t need from Quebec every month, but it’s only because he asked for it and qualifies for it.
The Gazette invites reader questions on tax, investment and personal finance. If you have a query you’d like addressed, send it to Paul Delean, Gazette Business Section, Suite 200, 1010 Ste. Catherine St. W., Montreal, Que., H3B 5L1 or to by email to firstname.lastname@example.org