Funding Capital Gains Tax on a Business at Death

 

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As a business owner, either small or large, there is absolutely no doubt that you and/or your partners have worked extremely hard to build your business and increase its value! Whether you started the business from scratch or purchased an existing company and proceeded to make it grow, the fact is that your business value has probably increased well beyond your initial investment.

In the event of death, any individual who owns shares in a corporation, a partnership interest, or business assets (such as in the case of a sole proprietorship) will be deemed by Canada Revenue Agency to have disposed of these properties. As a result, a tax liability may arise in the form of Capital Gains and Recaptured Capital Cost Allowance. If funds or other assets are not available to pay the tax liability the following two situation may arise:

  • Shares or Partnership interests may have to be sold
  • Business assets may have to be liquidated, possibly for a price below their fair market value

SOLUTION:

Life Insurance can be purchased to provide the necessary funds needed to pay both the:

  • Tax Liability that results from the Capital Gains
  • Recaptured depreciation triggered by death.

Life Insurance is a particularly valuable funding vehicle if the beneficiaries want to retain the Business or business property and assets OR if the market conditions will not provide the estate with an amount equal to the fair market value of the property.

The insurance solution can be structured in different ways depending upon the unique needs of each business. An individual could own the life insurance policy or it could be owned by the corporation/partnership and dispersed to the individual’s estate after death.

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Health Risk always recommends that your Accountant play a role in the establishment of appropriate insurance programs in order to determine the proper tax implications for your Company or Business.

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Please contact Health Risk should you have any specific questions you may have regarding Funding Capital Gains Tax on a Business at Death or if you would like to receive a quotation.

 

DISCLAIMER: Please be advised that the information on this web site is intended to present a broad variety of general information as simply and accurately for your knowledge as we possibly can. In no event does this information form part of or apply as a legal document. Therefore, please note that rules, conditions and industry practices discussed may be changed over time.