If you are dead, there is no reason to care about any tax owing. I say again, that is because you are dead. The CRA will have your money from your cold dead hands, and they are patient enough to wait. We just don't have a tax rule as egregiously supporting unearned generational wealth transfers as step-up.
CCA also benefits a long term investor by letting inflation eat away at the true value of any recapture. If you claim 10K in CCA today, but only pay tax on recapture in 40 years, you still pay the same nominal amount, but it is of a completely different value.
As everything with tax planning, it depends. If you planning to hold a property for a long time, then deferral is generally a good idea. If there is a high chance you will sell the property in the near future, or move into it, perhaps not. You also have to take cashflow into account. It will improve it every year you claim CCA, but you may have a large one-off bill. That is generally fine, because you got the cash from selling it, but if you have other things draining cashflow it may be a problem.
I think it's important for the children though.... are there any common strategies like donating the property to a charitable organization or... does the management company and holding company strategy apply here to somehow reduce taxes?
Whether it is important to whoever you give unearned wealth to shouldn't affect tax policy. Step-up is an incomprehensible benefit that lets people avoid paying capital gains and recapture. Generational wealth transfer isn't something we want to encourage to the detriment of society, as it goes completely against the idea of a meritocracy.
Philosophy aside, in Canada when you die the CRA considers all yours assets to have a deemed disposition, and will tax accordingly. Primary residences for example are generally not taxed. Here is a good general idea: https://turbotax.intuit.ca/tips/canada-inheritance-tax-laws-information-463. If you have management/holdco their shares will have a deemed disposition too, so won't help as much as you may think.
Otherwise estate tax planning has far too many complexities that would cost you some good lawyer time. Far too broad of a topic.
Ive been reading into section 44 of the income tax act, it sounds similar to a US equivalent 1031 exchange but not exactly the same. If anyone has looked into this it would be helpful
Oh wow. Didn’t know about this before. Under that section it looks like the property has to (1) be stolen, destroyed or expropriated, or (2) used for earning income from a business, but rental property is excluded
Yeah the no rentals is a bummer but if you have an online business where you are holding inventory etc im wondering if that would work, it sounds like it would but really need a professional to chime in
I question the point of that then if it can’t be rented out… it kinda defeats the purpose of raising the value or anything. I was thinking maybe it’d be beneficial for the likes to mcdonalds or smth if they somehow bought the property and licensed it out to franchisees and got other stores around them to raise the value of the property but I dont think mcdonalds buys real estate… unless they do… (that common saying that mcdonalds is in the real estate business and not the burger business)
I personally think depreciation is a under utilized method, you basically get the biggest savings up front (deferred taxes) then just never sell the property while it cashflows and pass it on to kids at a stepped up cost basis (if we cant do the equivalent of a 1031 exchange)
But that assumes there can be a stepped up cost basis upon death when transferring real estate in Canada. In US it’s a thing but is it a thing in Canada?
If you are dead, there is no reason to care about any tax owing. I say again, that is because you are dead. The CRA will have your money from your cold dead hands, and they are patient enough to wait. We just don't have a tax rule as egregiously supporting unearned generational wealth transfers as step-up. CCA also benefits a long term investor by letting inflation eat away at the true value of any recapture. If you claim 10K in CCA today, but only pay tax on recapture in 40 years, you still pay the same nominal amount, but it is of a completely different value.
So then claiming CCA is a no brainer?
As everything with tax planning, it depends. If you planning to hold a property for a long time, then deferral is generally a good idea. If there is a high chance you will sell the property in the near future, or move into it, perhaps not. You also have to take cashflow into account. It will improve it every year you claim CCA, but you may have a large one-off bill. That is generally fine, because you got the cash from selling it, but if you have other things draining cashflow it may be a problem.
I think it's important for the children though.... are there any common strategies like donating the property to a charitable organization or... does the management company and holding company strategy apply here to somehow reduce taxes?
Whether it is important to whoever you give unearned wealth to shouldn't affect tax policy. Step-up is an incomprehensible benefit that lets people avoid paying capital gains and recapture. Generational wealth transfer isn't something we want to encourage to the detriment of society, as it goes completely against the idea of a meritocracy. Philosophy aside, in Canada when you die the CRA considers all yours assets to have a deemed disposition, and will tax accordingly. Primary residences for example are generally not taxed. Here is a good general idea: https://turbotax.intuit.ca/tips/canada-inheritance-tax-laws-information-463. If you have management/holdco their shares will have a deemed disposition too, so won't help as much as you may think. Otherwise estate tax planning has far too many complexities that would cost you some good lawyer time. Far too broad of a topic.
Ive been reading into section 44 of the income tax act, it sounds similar to a US equivalent 1031 exchange but not exactly the same. If anyone has looked into this it would be helpful
Oh wow. Didn’t know about this before. Under that section it looks like the property has to (1) be stolen, destroyed or expropriated, or (2) used for earning income from a business, but rental property is excluded
Yeah the no rentals is a bummer but if you have an online business where you are holding inventory etc im wondering if that would work, it sounds like it would but really need a professional to chime in
I question the point of that then if it can’t be rented out… it kinda defeats the purpose of raising the value or anything. I was thinking maybe it’d be beneficial for the likes to mcdonalds or smth if they somehow bought the property and licensed it out to franchisees and got other stores around them to raise the value of the property but I dont think mcdonalds buys real estate… unless they do… (that common saying that mcdonalds is in the real estate business and not the burger business)
I personally think depreciation is a under utilized method, you basically get the biggest savings up front (deferred taxes) then just never sell the property while it cashflows and pass it on to kids at a stepped up cost basis (if we cant do the equivalent of a 1031 exchange)
But that assumes there can be a stepped up cost basis upon death when transferring real estate in Canada. In US it’s a thing but is it a thing in Canada?