As the old saying goes, “the only things that are certain in life are death and taxes,” and eventually, all of your clients are going to die. After someone dies, his representatives have to file a final tax return. This return requires information on your client’s income and assets. As a general rule of thumb, the Canada Revenue Agency treats the assets of a deceased taxpayer as if they have been sold, and if there are capital gains, the taxpayer’s estate has to pay tax on that. To help your clients reduce their tax liability after death, you may want to offer them some advice while they are still alive.
Consider talking to your clients about life insurance. Most life insurance payouts are not taxed, and as a result, your client’s heirs can use the life insurance policy to cover any outstanding tax liability. You may want to help your clients figure out their anticipated posthumous tax liability in advance so they can plan accordingly. Additionally, it can also help to own assets jointly. You still have to report capital gains on these assets, but because someone else owns half of the property, that cuts the gains in half, thus lowering the tax burden. If your client has a large estate, he may want to give money to friends or relatives while he is alive to help reduce the tax burden after death. The CRA does not limit the amount of cash your clients can give away. Throughout your client’s life, urge them to report all of their capital losses. On the final tax return, those losses can be immaterial for offsetting gains.
Finally, when preparing a final tax return for a client or the family members of a client, be sure that you claim all the relevant tax credits and deductions. In particular, ensure you claim any capital gains exemptions that your client deserves. All of this helps to lower the tax liability on the final return.
As an accountant, you should find extra ways to help your clients. If you’re worried that they may owe a lot of tax on their final return, consider talking to them in advance so they can plan ahead.