No, Canada has no court tax: this is what really happened

A reader sent me a CTV news story That made the rounds entitled this week: “Daughter hit a tax assessment of $ 660,000 when both parents died in the same year.” The reader wondered if this was the evidence that pensioners had to remove their RRIFs early to prevent a crushing ‘real estate’.

It is the kind of story that quickly spreads because it sounds outrageous and unfair. But like so many financial headlines, the critical context leaves away and stirs unnecessary fear.

Let’s start with the obvious: both spouses who die in their early 1960s within a year in succession are incredibly rare. Even with a careful RRSP or RRIF planning planning, there would not have been enough time to reduce the balances meaningfully before both deaths took place.

This is a very specific and unfortunate situation, not something that most pensioners have to plan as if it will probably happen to them.

The article also obscured the biggest factor in that tax account of $ 660,000: the house.

In Canada, your main residence is exempt from power gain tax, but a second real estate as a house is not. If that house was purchased decades ago and considerably appreciated, the power gain can easily represent hundreds of thousands of dollars in taxable income when the property is sold or sold in the event of death.

Combine that with two large RRIFs that collapse in the same tax year and it is no surprise that the total tax assessment looked enormous. Selling the house would have covered more than those taxes, which makes this less a tragedy and more a timing and preference (wants to keep the cottage).

Here is the story that we were told:

1. Parents pass and leave an RRSP balance of $ 715,000.
2. The RRSPs are fully taxed as income on the terminal (final) tax return, resulting in taxes of approximately $ 340,000.
3. The Family Cottage has built up considerable power gain, which adds another $ 320,000 in taxes.
4. The total tax account is $ 660,000, leaving only $ 55,000 in ‘inheritance’.

Sounds terrible, right? But here is what is missing: what happened to the house?

If there is $ 320,000 tax on the house, it means that there was around $ 1.28 million in capital profits. In other words, the house was worth at least $ 1.28 million, and probably more because the parents bought it in 1998 and possibly demanded the main exemption since 2020.

The article suggests that the children inherited the house and used the RRSP revenue to cover the tax account so that they should not sell it. If that is the case, the family do not inherit $ 55,000 – they inherited around $ 1.34 million after tax.

If you look at it like that, the total estate value was around $ 2 million and about $ 660,000 went to taxes. That is an effective tax rate of around 35 percent. It is not insignificant, but it is hardly the horror story of the “Death Tax” that makes the head.

If you inherit a $ 1.28 million cottage after the taxes have been paid, you are doing well. It is just not as clickable as “family loses the inheritance to the government.”

The real shame here is how bad these stories are reported and shared. The journalist missed the most important details and some advisers even used the story to scare customers to act Rashly. Good financial planning is not about panic or politics. It is about understanding the rules and planning accordingly.

Canada has no legacy or inheritance tax. What we do have is a postponed system in which RRSPs and RRIFs eventually become taxable income, and where secondary properties cause capital profits. These are well -known quantities that can be planned for years in advance.

So what should pensioners actually do? The goal is not to eliminate taxes completely, but to smooth them out over time. That may mean that a little more is pulled out of your RRIF every year, especially if you are now in a lower bracket than your estate can be confronted later. You can use those recordings to supplement your TFSA or non-registered account-in money from your left socket (taxable) to your right bag (tax-free or more tax efficient).

But it’s a delicate balance. Now that paying too much tax to prevent a hypothetical estate account, the surviving spouse can leave less income and less flexibility. Because women tend to live longer, this usually means that the younger woman can remain less resources later in life. It is much more common for one spouse to survive the other for many years than for both to die in the same year.

We cannot necessarily plan around edge cases. If I knew in advance that my wife and I would die in our early 60s, we would now retire and lead our best life. But cautious financial planning means that you have sufficient resources to go if you go beyond a normal life expectancy, not if you both tick both unexpectedly early.

The Bottom Line: This CTV story was not about an unfair ‘death tax’. The point was what happens when large tax expenditure and valuable property meet the tax rules that have always been. Correct planning – Coordinated RRIF -recordings, TFSA – contributions, partner bubbles and thoughtful estate planning – can prevent unpleasant surprises. The government has not ‘taken’ the wealth of this family. Mathematics just caught up with them.