On June 18, 2020, Phillip (age 69), a Canadian resident living in Ottawa, passed away from natural causes. He is survived by his wife Elizabeth (age 66) and two children Ann and Edward.
Phillip loved his family and enjoyed working in the family business, Royal Pooch Inc. (“RPI”), a well-established pet store located in downtown Ottawa. RPI is a Canadian controlled private corporation (“CCPC”). Phillip owned all 500 common shares at the time of his death. He originally inherited the shares from his father at the time of his father’s death 25 years ago. At that time the company’s fair value was $1,500,000. At the time of Phillip’s death, the company was worth $3,800,000, and the shares of RPI were qualified small business corporation (“QSBC”) shares.
Phillip owned no other property, as the family home is owned 100% by Elizabeth. Elizabeth’s income consists of a salary from RPI and CPP income.
RPI paid Phillip a modest salary of $3,500 per month, payable on the second day of the following month. His last pay day is June 2, 2020 for the month of May, and no RPI salary will be paid to him for the month of June since he stopped working June 1, 2020. However, on May 30, 2020, RPI declared a substantial non-eligible dividend on its common shares in the amount of $130,000. The dividend was payable on June 30, 2020.
Per Phillip’s will, Elizabeth is his executrix and the beneficiary of all assets, except for his RRSP. His RRSP at the time of his death was worth $250,000, and Ann and Edward are listed as the named beneficiaries (50/50). Elizabeth is named as a beneficiary on Phillip’s TFSA which is worth $80,000 at the time of his death. He never got around to changing Elizabeth from beneficiary to successor holder, but he figured there would not be an issue. Philip did not earn any other investment income outside his TFSA and RRSP.
Phillip received $300 per month in CPP in 2020. Elizabeth received Phillip’s CPP death benefit of $2,500 following his death.
It is now December 9, 2020 and Elizabeth has approached you, CPA, for tax advice in connection with the assets she has inherited from Phillip as well as assistance in filing Phillip’s 2020 tax return. She wants some assistance in estimating Phillip’s 2020 minimum taxable income, maximizing any available deductions. Elizabeth would also like an explanation for any items omitted from his tax return and would like to know what filing options are available, and the respective due dates. Elizabeth would also like to know her cost base per share of RPI following the death of her late husband. Per CRA, Phillip has never claimed an allowable business investment loss (“ABIL”) and his entire capital gains exemption (“CGE”) is available.
