On death, the middle class could end up in the new 33% tax bracket, perhaps for the first time in their life, or death. Finance Minister Bill Morneau’s announcement that increases the top federal tax bracket from 29% to 33% could affect anyone dying after December 31, 2015 if the taxable income on their final tax return is over $200,000—and also increases the amount of provincial tax due. But as they say, the dead don’t complain.
Anyone who has a spouse or common-law partner can defer a portion of their tax bill on death by transferring, or rolling over, certain items to their surviving spouse or common-law partner. However, on death of the last surviving spouse or common-law partner in the relationship, or for anyone who is single, the value of registered plans—such as an RRSP or RRIF—must be added to the deceased’s final tax return. The taxable portion of any capital gains (of the profits) on investments, vacation properties, and certain other assets must also be added to the deceased’s final tax return. Any taxable income over $200,000 will be taxed at 33%.
January 1, 2016 also brings in additional tax changes that affect the estate plans of the middle class—such as the graduated rate estate (GRE) and the qualified disability trust (QDT) for beneficiaries who qualify for the disability tax certificate and receive their inheritance in a testamentary trust.