France Vézina
Senior Manager | Pl. Fin., D. Fisc. | Tax

Writing a will is a complex endeavour, and it is essential to understand the tax consequences of certain clauses to avoid unpleasant surprises. For example, does a survivorship clause preclude a tax-free rollover of property or a registered plan as a spousal bequest?

Indefeasible vesting

The rollover of property to a spouse or spousal trust upon a taxpayer’s death is an exception to the rule of deemed disposition at fair market value of any property owned by the taxpayer immediately before death.

To benefit from a transfer, several conditions must be met, including the requirement that the property of the deceased be vested indefeasibly to the spouse, or to an exclusive spousal trust, within 36 months following the death.

When a will contains a classic 30- to 60-day survivorship clause, according to the Canada Revenue Agency (CRA), such a clause does not in itself preclude the rollover of property to the spouse, if the latter survives the testator beyond the period stated in the clause. However, the CRA also specifies that, should the spouse die within the period stated in the survivorship clause, the rollover provided by law does not apply, because the bequest would be retroactively transferred to someone else.

Registered plan bequests

Upon the death of a registered plan annuitant, tax-free vesting occurs by virtue of the premium refund concept.

At the time of death, the annuitant of a registered retirement savings plan (RRSP) or a locked-in retirement account (LIRA) is deemed to have received, immediately before death, an amount in the form of a benefit equal to the fair market value of property included in the plan. This amount should be included in the computation of the deceased taxpayer’s income.

Following the death of the registered plan annuitant, insofar as any plan amount is paid to the surviving spouse, child or grandchild financially dependent on the plan annuitant such payment will then constitute a refund of premiums that is deductible in the computation of the deceased taxpayer’s income. The end result will be tax-free vesting.

As for the taxpayer who receives the amount that qualifies as a premium refund, if the amount is transferred into an RRSP or used to acquire a life annuity for the surviving spouse, child or grandchild, the transfer is tax free, if certain conditions are met.

In the case of a registered retirement income fund (RRIF) or life income fund (LIF), the rules regarding tax-free vesting have the same characteristics of inclusion and deduction for the computation of taxable income as those of an RRSP.
In short, vigilance is a must when writing a will. When there are conditions attached to a bequest of property, it is important to verify whether such condition(s) will have a tax impact. Our will and estate planning specialists can help ensure peace of mind and financial security for both your loved ones and yourself.

19 Feb 2015  |  Written by :

Ms. Vézina is a partner at RCGT. She is your expert in taxation for the Québec office. Contact her...

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This bulletin summarizes the new requirements of IFRS 15 Revenue from Contracts with Customers and what they will mean for entities in the real estate industry that apply International Financial Reporting Standards (IFRS).

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Jean-François Boudreault
Partner | Management consulting

The deficit of qualified and skilled labor now forces organizations to review their recruitment process to make it optimal and more performant.

Indeed, since it is getting harder to attract good candidates, it is important to make sure not to miss the available skilled resources. In a formal screening process, candidates consent to several steps, amongst others, the curriculum vitae selection, telephone interview, behavioural interview and some validation steps, such as psychometric tests, the judicial and financial records verification, as well as a delicate step, that is, employment references consulting.

This step, determining for some and common for others, usually takes place at the end of the process, just before writing the formal offer. It is used most of the time to confirm or disconfirm general impressions and perceptions experimented during the interviews. Since this critical step is at the end of the process, it is your last chance to objectivize your candidates.

As many situations may turn sour during this step, we propose to summarily clarify its proceedings for you. It is important to treat this step with meticulousness, because many candidates with a strong potential may have eluded you for various reasons. It is said that interviewing is an art; consulting references also is. What importance should you give to this step?

Validate the source

First, in order to respect the legality and ethics of this approach, the candidate must formally authorize (preferably in writing) this verification. This little, but important detail will allow you to avoid many inconveniences for the rest of the process. Usually, the candidate is the one who provides a list of people to contact, at the employer’s request.

You must understand that we do not make a judgement, but people listed as references rarely provide bad comments, since they have been selected by the candidate, who hopes to pass this step easily. We do not pretend that the candidate is in collusion with his/her references, but he/she surely prepares them for an eventual call. After all, nobody would recommend its worst enemy. This is also an interesting lead to be followed.

Too often, references are not the best people to properly answer judiciously asked questions: a former colleague that became boss, a colleague of the same hierarchical level, a supplier, a personal assistant, etc.

Moreover, the simple letter of reference is often nearly invalid. Make sure to question the signatory to confirm the facts. These letters are sometimes written to cover a tumultuous end of employment. It is crucial to validate the source and know how to balance and interpret the information received, if need be. If in doubt, do not hesitate to ask for other relevant references: a subordinate, a line supervisor, etc. An accurate analysis must be carried out.

Besides the source’s validity, what would you ask a respondent? Try, insofar as possible, to interrogate him/her with development questions instead of forced-choice items. A professional aware of the art of consulting references will be able to detect certain slippery issues and ask more specific questions to clarify any ambiguities.

If you question the supervisor of a key employee a couple of days after his departure, his/her comments will probably be bitter and cold, what could be interpreted as an average reference. However, if you examine the file and gain the resource’s confidence, you will rapidly detect that a certain disappointment due to the departure is clouding the situation.

Beware of a prodigious reference as much as a terrible one. Very good comments are not always a guarantee of success. On the contrary, negative references do not necessarily mean that the candidate is not qualified for the proposed challenge. Verify the context in which the reference is given and do not take anything for granted; ask questions and draw your own conclusions.

Reference step is a work tool

Considering the uncertainty of the information obtained during the validation of employment references, we suggest you to only give this step a relative value. Furthermore, according to some surveys, the validation of references does not get a very high rating in the forecast of a future success.

If your strategy was exclusively based on this step, we strongly recommend you to review your position and make more efforts in the beginning of the approach, that is, by favouring a structured process in which the reference step is a work tool, not a decision one.

In conclusion, remember that every step is important in a screening process and deserves to be treated with diplomacy, respect and professionalism. Thus, the next time that you will interrogate a respondent, make sure to validate the source’s credibility and the context in which the candidate worked. Ask questions regarding tasks, achievements and the termination of employment, and allow yourself to interpret and balance the message, if need be. After all, would you allow a perfect stranger to decide the future of your process, considering the efforts you invested in the previous steps?

05 Feb 2015  |  Written by :

Jean-François Boudreault is a partner at Raymond Chabot Grant Thornton. He is your expert in human...

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The Reporting Entity: an often neglected aspect of municipal accountability

Management best practices for your municipality (Vol. 1, N° 8)

The concept of reporting entity refers to the fact that the entities under direct or indirect control of municipalities must be included in the municipality’s financial information so that citizens and financial statement users may understand all the financial implications of decisions made by these entities on the municipality’s financial situation. Therefore, appropriately determining the reporting entity promotes accountability and transparency in disclosing a municipality’s financial situation.