The primary tax planning objectives that should be an integral part of your estate planning are:
Tax Deferral
It makes sense to defer (postpone) capital gains taxation for as many years as possible, by taking advantage of any rollovers that are available, such as the spousal rollover, or the farm property rollover.
Minimize Taxes Arising on Death
You should minimize the future capital gains taxation on death, by taking advantage of what-ever exemptions are available, such as the principal residence exemption, and the lifetime capital gains exemption for shares of a small business corporation.
Minimize or Eliminate Your Exposure to Foreign Estate Taxes
If you own assets outside of Canada, or if any of your intended beneficiaries reside in a country which imposes an estate or inheritance tax, you should explore ways of reducing or eliminating the exposure to foreign estate or inheritance taxes that could be payable on your death. For example, consider setting up a Canadian investment holding company to hold your investment portfolio, if it includes U.S. stocks or bonds.
Achieve Current Income Tax Savings
You may achieve some current income tax savings at the same time as you restructure your affairs to achieve future estate planning objectives. For example, there might be some income tax savings resulting from the formation of an income splitting family trust that is part of your overall estate plan. Any tax savings that you realize during your lifetime should mean that you will have a larger net worth in the future, and a larger estate for your family.
Avoid Unnecessary Complexity, and Retain Flexibility
Ensure that any plans which you implement are sound from a financial and legal viewpoint, and flexible enough to be adapted to your changing circumstances and future changes in the tax laws. Don’t embark on a complex tax planning strategy, unless you fully understand what is involved, and you are prepared to live with the complexity.
