attribution of taxes for jointly-held GIC after death

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grannash
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attribution of taxes for jointly-held GIC after death

Post by grannash »

My mother passed away mid-January 2015. Most of her assets were held in GICs held jointly with me, so that I could manage her money for her. The GICs all transferred to me on her death. Since any interest paid on these GICs was only payable on the anniversary date of the GICs, which was only June or December, am I correct in thinking that none of the interest earned in 2015 is attributable to my mother's estate?
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Re: attribution of taxes for jointly-held GIC after death

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Since it was her money, and you were on the title for convenience only, her estate would be liable to report any interest up until the date of death, and you would be liable to report the rest of the interest. Since she passed close to the beginning of the year, you could take the total interest in your name. CRA wants somebody to report the interest.
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Re: attribution of taxes for jointly-held GIC after death

Post by Bylo Selhi »

grannash wrote:My mother passed away mid-January 2015. Most of her assets were held in GICs held jointly with me, so that I could manage her money for her. The GICs all transferred to me on her death. Since any interest paid on these GICs was only payable on the anniversary date of the GICs, which was only June or December, am I correct in thinking that none of the interest earned in 2015 is attributable to my mother's estate?
1. Are you the sole heir or are others expecting to inherit part of the estate? If it's you only then ownership passed to you on the date of death. You should calculate accrued interest between the last interest payment and date of death, then attribute it to the estate. Remember to subtract that from your income when the next interest payment happens.

2. As I understand it a "for convenience only" joint ownership can be tricky when there are multiple heirs unless you have some documentation to prove it. Strictly speaking if the GICs are registered JTWROS between your mother and you then ownership passes to you outside the estate. Other heirs may not be happy with that and may object. You may need professional legal advice.
stardancer wrote:Since it was her money, and you were on the title for convenience only
That's not what he said. Often joint GICs are registered as JTWROS and that's where the contention begins. If the registration is actually "for convenience only" and/or there is other documentation to back up that position, then yes, the GICs go to the estate.
Since she passed close to the beginning of the year, you could take the total interest in your name.

Yabbut the anniversary of the GICs is "June or December." You might be able to get away with year-end on the December GICs, especially for smaller amounts. But the June ones will likely need a proper calculation. It's not hard to create a spreadsheet to calculate this stuff.
CRA wants somebody to report the interest.
They also want the right person to pay it. And as I said above, keep good records on who paid tax on what part of the interest. Otherwise you risk paying tax twice on the same amounts.

Keep in mind too that the T5 slips for TY15 are going to be in the mother's name. So if income attribution of the interest payments is split then you'll need to keep appropriate records, e.g. that spreadsheet, and you'll need to attach a copy to all the relevant tax returns. (Otherwise CRA will go by the SIN on the T5s and you'll have to challenge that afterwards.)
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Re: attribution of taxes for jointly-held GIC after death

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Bylo Selhi wrote:...
CRA wants somebody to report the interest.
They also want the right person to pay it. And as I said above, keep good records on who paid tax on what part of the interest. Otherwise you risk paying tax twice on the same amounts.
Keep in mind too that the T5 slips for TY15 are going to be in the mother's name. So if income attribution of the interest payments is split then you'll need to keep appropriate records, e.g. that spreadsheet, and you'll need to attach a copy to all the relevant tax returns. (Otherwise CRA will go by the SIN on the T5s and you'll have to challenge that afterwards.)
^+1 I was going to suggest you look back at previous year's income tax returns to confirm how the interest was being reported so you don't either double dip or miss reporting any.
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Re: attribution of taxes for jointly-held GIC after death

Post by grannash »

Thanks everyone. Yes, I am the sole heir. Not questioning who owns the GICs. That is easy and clear, fortunately.

T5s were in both our names, since the accounts were joint.

Bylo, you say "You should calculate accrued interest between the last interest payment and date of death, then attribute it to the estate."

Do you mean the interest that would have been earned in the first 13 days of the year (she passed away on Jan. 13), even thought it was not actually paid until June or December?

Thanks!

Laura
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Re: attribution of taxes for jointly-held GIC after death

Post by AltaRed »

The way it works is that all interest accrued since the last anniversary date and during the calendar year up to the the date of death is taxable in the OP's mothers estate. Any anniversary payment up to the date of death is taxable in the estate and any accrued interest thereafter up to the date of death is taxable to the estate. Accrued interest to date of death is not hard to figure out (linear arithmentic approach) or have the brokerage calculate it for you and make your life simpler.

I just went through all this for my mother's estate for which I did the tax return yesterday. I had the brokerage give me the accrued interest to date of death such that when the T5 came in 2 weeks ago, I was able to allocate the T5 correctly to 2 different tax returns. In my case, there were 2 heirs, so the allocation is between the T1 General Final Return and a TestamentaryTrust Return, but a similar approach can be used here, i.e. the allocation on the T5 can be done the same way.... the portion up to death to the mother's T1 Final Return and the remainder to the heir.

Added: A few examples from my mother's death in April 2015:

Compound annual GIC with anniversary date of Mar 15th: The anniversary payment is attributable to the estate T1 Final Return plus interest accrued thereafter to date of death. After that, the remaining accrued interest until GIC was sold was accrued to the Trust Return. In this case, there were 2 portions of income attributed to the T1 Final Return.

Compound annual GIC with anniversary date of May 15th: Interest accrued since the last anniversary date to date of death is attributable to the T1 Final Return, The remaining portion of the interest accrued since date of death (not the full anniversary payment of May 15th) is attributed to the Trust Return plus any interest accrued thereafter. In this instance there were 2 portions of income for this GIC attributed to the Trust Return.

There was only one T5 issued for about 15 GICs. Allocations needed to be made for each GIC so that all the interest added p to the total on the T5, one portion to the T1 Final Return and a portion to the Trust Return. I included an Exhibit in the tax returns showing the allocations for each GIC.
Last edited by AltaRed on 06 Mar 2016 13:02, edited 3 times in total.
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Re: attribution of taxes for jointly-held GIC after death

Post by Bylo Selhi »

grannash wrote:T5s were in both our names, since the accounts were joint.
What initially matters to CRA is the SIN on the T5. If it's your mother's then that's who they'll attribute all interest until you advise them otherwise. Also make sure the GIC issuer changes the SIN in their system to yours or you'll get T5s with your mother's SIN next year. (I'm speaking from experience on this.)
Do you mean the interest that would have been earned in the first 13 days of the year (she passed away on Jan. 13), even thought it was not actually paid until June or December?
Yes. Accrued interest is attributed to your mother until date of death and then to you. If the GICs are fairly large then breaking out the 13 days interest for 2016, especially if your mother's estate would have little other income in 2016, may be advantageous because you'd benefit from the basic income exemption and lower tax bracket on any excess on the TY16 return. It may be worth talking to an accountant about how best to proceed to find the best compromise between tax minimization and simplicity.
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Re: attribution of taxes for jointly-held GIC after death

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Bylo Selhi wrote:Yes. Accrued interest is attributed to your mother until date of death and then to you. If the GICs are fairly large then breaking out the 13 days interest for 2016, especially if your mother's estate would have little other income in 2016, may be advantageous because you'd benefit from the basic income exemption and lower tax bracket on any excess on the TY16 return. It may be worth talking to an accountant about how best to proceed to find the best compromise between tax minimization and simplicity.
Agree this could be advantageous to the OP (mother's T1 Final Return may have a lower marginal tax rate than the heir) especially if there is a lot of money involved and/or a lot of the GICs had early anniversary dates. Example: A GIC with an anniversary date of Mar 1, would have over 10 months of accrued interest to be assessed to the T1 Final Return, not just the amount from Jan 1, 2015 for 13 days.

As I posted above, it is best to include an allocation exhibit in the tax return so CRA minions can understand it....since the T5 won't show the split itself. I did 4 exhibits yesterday for my mother's T1 Final and the Trust Return, one for each of3 T3/T5 tax slips and one for capital disposition of mutual funds.

Edited for clarity
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Re: attribution of taxes for jointly-held GIC after death

Post by Bylo Selhi »

AltaRed wrote:As I posted above, it is best to include an allocation exhibit in the tax return so CRA minions can understand it....since the T5 won't show the split itself.
As did I, "So if income attribution of the interest payments is split then you'll need to keep appropriate records, e.g. that spreadsheet, and you'll need to attach a copy to all the relevant tax returns. (Otherwise CRA will go by the SIN on the T5s and you'll have to challenge that afterwards.)" ;)
I did 4 exhibits yesterday for my mother's T1 Final and the Trust Return, one for each of3 T3/T5 tax slips and one for capital disposition of mutual funds.
I went through all this twice. My dad had GICs JTWROS with my mom, with me and with both of us. Then all over again when my mom died. My parents' accountant mentioned that when someone dies near year-end the CRA will allow some simplification, especially if the amounts are relatively small. That's partly why I suggested consulting an accountant.
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Re: attribution of taxes for jointly-held GIC after death

Post by twa2w »

The estate department of most banks will calculate and provide a t5 slip for interest to date of death.
Just ask.
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Re: attribution of taxes for jointly-held GIC after death

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twa2w wrote:The estate department of most banks will calculate and provide a t5 slip for interest to date of death.
Just ask.
I thought RBC DI might have done that automatically dut they did not. What I did ask for last summer in anticipation of needing the data anyway, and they did do for me, was the accrued value of all assets (including GICs with accrued interest) as of date of death. That made the process simple enough. Didn't think to ask them to split the T5.
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Re: attribution of taxes for jointly-held GIC after death

Post by Thegipper »

My question is different. I really don't want to start a new topic so I will put my question. If one has a RRIF and passes on without a spouse and has laddered GICs inside the RRIF would the estate have to carry until the GICs matured? may-be the company's that sell GICs have a special provision in this type of situation? just wondering.
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Re: attribution of taxes for jointly-held GIC after death

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I expect that a "responsible" institution would pay GICs out on death. EG:
http://www.scotiabank.com/ca/common/pdf ... rms.pdf?v2
Non-Redeemable GICs are not redeemable prior to maturity except in the event of the owner’(s) death. In these cases, all interest earned to the date of redemption will be paid.
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Re: attribution of taxes for jointly-held GIC after death

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The answer is, it depends. If the rif is held directly with a bank, the gic's are cashable on death of annuitant and the estate can distribute cash. After taxes of course. Usually in this case, the bank will pay the posted interest rate up to date of encashment.

If the gic's are held with a broker or discount broker then it may depend. Usually there is some provision to cash out, or sell the gic's. just call the brokerage and confirm the process. You may take a small hit on interest or capital but I have rarely seen this happen.
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Re: attribution of taxes for jointly-held GIC after death

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In my mother's case with a GIC ladder, RBC DI said we could either have them 'matured' and pay out principal and accrued interest for $100 admin fee per GIC... or sell them on the secondary market to whoever would offer a price for them. On the latter, there was no way of knowing what that price would be, so we opted for the first option. Cost $900 to mature 9 GICs (from I think 4-5 different institutions).

My understanding is that these 2 options are fairly typical.
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Re: attribution of taxes for jointly-held GIC after death

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I wonder if anyone can get access to that secondary market for GICs? Maybe I could get a good deal.
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Re: attribution of taxes for jointly-held GIC after death

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DenisD wrote: 19 Apr 2017 16:19 I wonder if anyone can get access to that secondary market for GICs? Maybe I could get a good deal.
Good question. I think you'd have to let your brokerage know to keep you on the short list but whether they'd deal with you as compared to a wholesaler is yet another question. I know at the time the brokerage warned us that the secondary market is a crap shoot.
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Re: attribution of taxes for jointly-held GIC after death

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twa2w wrote: 06 Mar 2016 19:25 The estate department of most banks will calculate and provide a t5 slip for interest to date of death.
Just ask.
Not in my experience.
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Re: attribution of taxes for jointly-held GIC after death

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I think you people are making an accounting mountain out of mole hill. The beneficiary received the interest paid, it should be no hardship for OP to bear the tax burden. CRA just cares that someone declares it for tax purposes. Trying to divide the interest accrued before/after death is just going to be a pain.
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Re: attribution of taxes for jointly-held GIC after death

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OhGreatGuru wrote: 20 Apr 2017 20:32 I think you people are making an accounting mountain out of mole hill. The beneficiary received the interest paid, it should be no hardship for OP to bear the tax burden. CRA just cares that someone declares it for tax purposes. Trying to divide the interest accrued before/after death is just going to be a pain.
What are you talking about? This is about maturing the GICs upon death. The quote from Gipper is:
My question is different. I really don't want to start a new topic so I will put my question. If one has a RRIF and passes on without a spouse and has laddered GICs inside the RRIF would the estate have to carry until the GICs matured? may-be the company's that sell GICs have a special provision in this type of situation? just wondering.
But further to your response, CRA might care about before/after death accrual allocation, particularly if the marginal tax rate on the Final T1 is quite different than that on the T3 if indeed it is taxed in the trust vs a T3 to the beneficiaries.
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