All About Estates

Tax me once, that will suffice; tax me twice, now that’s not nice.

We are always being reminded of life’s two certainties – death and taxes. While a person will only die once, those owning shares of a private company may, without proper tax planning, suffer the indignity of being taxed twice on the same economic gain in respect of their private company shares.

A person is deemed to have disposed of their assets including shares of a private company for proceeds equal to the fair market value of those assets at the time of death often resulting in a capital gain or capital loss. The exception to this rule arises where the person wills their assets to either a spouse or a qualifying spousal trust in which case any gain is taxed when the spouse dies.

Where the deceased’s assets do include shares of a private company there isn’t a mechanism to automatically increase either the tax cost of the company’s appreciated assets or the paid-up capital of the deceased’s shares in the company. Without proper tax planning, the economic gain which was taxed in the deceased’s final return may be taxed again when the company sells the appreciated assets and distributes the after-tax proceeds to the estate beneficiaries.

If you are the owner of shares in a private company then I recommend care when developing an estate plan to include language in the will that will allow your executor(s) the authority to complete the post-mortem tax planning transactions to avoid double taxation.

One level of tax is enough.

Derek de Gannes

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About Derek de Gannes
Derek A. de Gannes: Director, Domestic & International Tax of RSM Canada. RSM Canada is committed to the highest level of integrity, quality and professionalism and provides clients with solutions in the area of Audit, Tax and Transaction Services. Email: derek.degannes@rsmcanada.com