A small change in last week’s budget promises a benefit during declining markets: RRSP and RRIF losses will be treated fairly in estate distributions.
When an RRSP or RRIF annuitant dies, the taxable value to the estate includes gains made after the annuitant’s death, taxable in the hands of the estate’s beneficiaries. But until now, the reverse has not been true. This is much like the regime for in-kind RRSP contributions, where capital gains are taxable, but capital losses are not deductible.
But last week’s budget proposed that losses in registered plans incurred since the death of the annuitant but before the estate is finally wound up can be deducted from the amount that was to be included in the income of the estate’s beneficiaries.
The loss provision applies to estate distributions made after 2008.
Will it have much impact?
“I think that, hey, if they’re going to tax us on the upside then they should allow losses to be carried back,” says Cynthia Kett, a CA and CFP with Stewart and Kett Financial Advisors in Toronto.
“In this last year, it would have been very relevant in certain circumstances,” she adds. “I figure it could have potentially in a year like this — but hopefully a year like this is unusual, or extraordinary in the extent of the losses.”
Still, there are a couple of wrinkles, notes Kim Moody, a CA based in Calgary, who just happened to be attending a tax conference in Winnipeg where the topic came up. “It’s time-sensitive,” he notes. “The funds must be distributed no later than the end of the second calendar year. So if he died today, for example, the funds would have to be distributed no later than the end of December 2010.”
All the same, it’s a welcome move, he adds. “It’s very, very useful. It’s something we have been lobbying for, for some time, and it’s nice to see that.”
And welcome from an equity viewpoint, explains Kett.
“Nobody likes to pay taxes ever, but it almost seems an insult that they hit you on your last dying breath. They hit you unless you’ve done some planning. But some things you just can’t plan around and unforeseen losses are one of those things. Any time they give you a tax benefit with supposedly no strings attached is always a good thing.”