Ken's Comments of the Week
OFFENSE TO DEFENSE
Canada Revenue Agency(CRA)
Eventually CRA does notice compliance delinquencies (as they like to say). Arbitrary financial insults result. Your tax position changes from an offensive, self-assessing posture to a more cumbersome, costly (financial and mental), defensive posture. For example, CRA tax collectors do not know or care about why tax is assessed and owing.
CRA expects and suspects you are attempting to reduce your taxes. You might as well oblige them, compliantly of course, whatever that involves.
Estate Planning & Wills
Some things just will not look better with lipstick applied - ever so desperately. Not even worth trying. So here is a plain blast from the vaults of tax despair. The Reaper is laughing his head off before he takes yours – almost as much as the feds will be gloating over your grave.
Your spouse and/or group of your estate beneficiaries – lead by the executor of your will - will not be happy. No. 1 reason – because you died; No. 2 reason – you did not perform a tax review of your will. Let’s just ignore the fact that 50% of adults in Canada do not have a will to do a will.
Naturally, tax and trust, family law and estate legislation in Canada is complex, overpopulated by tax mines and legal niceties – on purpose. Add it all together and you have a perfect tax storm. Without careful attention to the terms of the bequests in your will, let alone predeath disposition of your assets, (to whom, when and now much) it is likely (if you have assets to mumble about) there will be unknown and potentially substantial and automatic shocking tax debt for your estate or your beneficiaries.
It is rarely just a light breeze to get your lawyer and tax accountant together to perform a tax consequences review of the terms of your will, let alone agreeing on the amendments needed to thwart the tax collector - your right as a dead tax payer. Ask your accountant to review your assets and debt (the first complication will be if they are jointly owned) and do a mock terminal tax return (your last). Then ask them for help to suggest the nature and manner of options to reduce the potential tax debt and provide liquidity for its payment. The effort is worth every moment and dollar. You will experience redemption.
DEATH INSURANCE. GET IT.
For the death of me I cannot understand why they call it life insurance. It’s death insurance. You have to die. You have to pay the premiums so someone else can be supported after you die. Is it worth it? As they say – when truth or financial desperation prevail - no-one has ever wished they spent more time at the office or not paid the insurance premiums.
There are so many financial pressures on your estate (tax is the second shot to the head after all the fights over your estates remains) it is likely to be overwhelming to the miserable survivors.
TaxWatch Canada is publishing a report on death insurance and its needs and best choices to acquire. All we can accomplish for now is to encourage you to consider how much of a difference (tax free) insurance proceeds can make to your loved ones vs. leaving them to financial realities best left unspoken.
Heck, we do not even know our probable tax debt or claims against the estate and its kind of late to do anything about it after you pay the ferryman. The more certain favourable financial outcome is death insurance. It’s like a stash of cash that just appeared. Insurance proceeds are payable directly to the people you want it to go to [do not make the beneficiary of the policies your estate or this really messes up the objective B]. No fuss, no legal, no fights (usually). It’s Plan B on steroids. Plus, you get to enjoy more of your financial resources now knowing the death insurance will make up for what you expended on the romp of life.
IT IS DANGEROUS TO ASSUME ANYTHING ABOUT THE CANADIAN TAX SYSTEM
Guess what? Tax accountants and CRA officials do not know what is really going within CRA. How can we? Only 5% of the tax issues and disputes go to court and are public information. The rest of the compliance issues, policy treatments, success or failure of disputes and objections, and problems/solutions provided by CRA are held within CRA (a very departmentalized, need to know only organization) or are shared only within tax firms themselves and frankly, these people are really not that forthcoming to others.
It is alarming and dangerous to depend on vacuous assumptions of what tax outcomes will prevail when realistically, if we think about it, we all experience the tax journey with a pitiful lack of information – not to mention purposeful confusion and complexity - about how and why other taxpayers have fared and been able to better mange their tax outcomes - besides just going off road.
You need to utilize free consultations with experienced professionals and be prepared with lots of questions. You will then realize your assumptions are quite frail and will not withstand the violence/benevolence that the tax system can prevail upon you. The more you learn from those who have battle/helpful experience, the more your unwitting assumptions will vanish - to be replaced by reality – which you may not want to know but at least you are back on the road to somewhere.
Written during tax season. Please excuse.