Advisor.ca | Beware the 21-year rule
If you have clients who put properties into trusts 19 years ago, you have work to do.
Back on February 22, 1994, the federal government eliminated the $100,000 capital gains exemption for individual taxpayers.
CRA cut the capital gains rate to 50% from the prior 75%. But it also nixed a $100,000 lifetime capital gains exemption popular with investors who cashed out stocks they’d planned to sell sooner rather than later.
That same exemption was popular among Canadians who wanted to offset increases in the values of inherited vacation properties. They’d use the remaining exemption as part of a strategy to pass on the family cottage to their children or grandchildren.
Owners placed the property in a discretionary trust and triggered a capital gain. But with their remaining exemption room they were able to avoid paying tax for the transfer.
Problem is, that was 19 years ago, and if no action’s been taken in the interim, it won’t be long before the 21-year rule kicks in.
Tax and estate planning expert Yens Pedersen, an associate at Miller Thomson in Toronto, walks us through what your clients face.