Post-mortem planning
Post-mortem planning means steps taken after an owner’s death, while the estate is administered, to manage the tax on the owner’s shares of a private company. It works with rules such as the deemed disposition at death, the deemed dividend on a share redemption, and the estate loss election in subsection 164(6).
Families meet this when a private company owner dies and the estate holds the shares. Subsection 70(5) of the Income Tax Act generally deems the deceased to have disposed of capital property immediately before death for proceeds equal to its fair market value, subject to exceptions in section 70. Subsection 84(3) can deem a corporation resident in Canada that redeems its shares to have paid a dividend on the amount paid above their paid-up capital, subject to exceptions in section 84.
The estate loss election
Subsection 164(6) lets the legal representative of a graduated rate estate elect, in prescribed form and manner by the filing-due date, to have certain capital losses of the estate treated as losses of the deceased. Under that subsection, the year must be within the first three taxation years of the estate, and the losses elected cannot exceed the amount by which the estate’s capital losses for that year exceed its capital gains. The CRA’s folio on business investment losses also discusses the election under paragraph 164(6)(c).
What to ask
- Is the estate a graduated rate estate, and what are the election dates?
- What is the value of the shares at death, and who will value them?
- Is a redemption or a sale planned, and in which year?
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Government of Canada — Justice LawsGovernmentIncome Tax Act, section 70 (deemed dispositions on death)
- 02Government of Canada — Justice LawsGovernmentIncome Tax Act, section 84 (deemed dividends)
- 03Government of Canada — Justice LawsGovernmentIncome Tax Act, section 164 (refunds, including the graduated rate estate election)
- 04Canada Revenue AgencyGovernmentIncome Tax Folio S4-F8-C1, Business Investment Losses
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