In early March, you were preparing your client list with respect to the personal tax return preparation season. When you came across Mr. Ricky’s name you remembered that Mrs. Ricky had called you regarding her husband’s death. Mr. Ricky had passed away March 1, 2017, at age 62. Mrs. Ricky is the executrix.
Mr. Ricky owned and operated a Canadian-controlled private corporation, Shining Ltd. Mr. Ricky’s 100 shares had an adjusted cost base and paid-up capital of $55,000. The fair market value of the shares at the date of death was $5,750,000.
Mr. Ricky earned $12,000 per month in salary, which is paid by direct deposit on the last day of the month. A non-periodic bonus of $55,000 had been declared on February 15, 2017 but had not yet been paid at the time of his death. CPP of $2,564 has been, or will be, withheld on this income. He is not eligible for EI.
In addition to his shares, Mr. Ricky owned bonds with accrued interest of $917 in 2017 to the date of his death. Further, Mr. Ricky had owned two rental properties. Net rental income before capital allowance was $4,000 for each of the months of January and February 2017.
Other Information:
(1) All assets of Shining Ltd. have been used in the active business of the corporation.
(2) The shares of Shining Ltd. have been owned by Mr. Ricky since 1999.
(3) Mr. Ricky had earned income in 2016 of $95,000. He contributed to his RRSP the maximum amount allowed as a deduction in 2016 but did not make the 2017 contribution. His RRSP was worth $295,000 at the time of his death. Mrs. Ricky is the designated beneficiary of his RRSP.
(4) His 2016 personal tax return was prepared but not filed at the time of his death
(5) Mr. Ricky had not used any of his capital gains exemption.
(6) All of Mr. Ricky’s assets have been left to his wife, except for the two rental properties which are bequeathed to his 20-year-old daughter.
(7) The rental properties had the following details:
Unit # 1 Unit # 2
Land Building Land Building
Fair market value $100,000 $100,000 $120,000 $80,000
Capital cost 90,000 72,000 110,000 83,000
UCC 50,000 52,000
The partner has asked you to prepare a memo to the tax file explaining the tax implications of the above information, the filing requirements for Mr. Ricky’s tax returns and any planning opportunities available.
Before you meet with the partner you want to:
- Assess the situation
- Identify the issues
- Analyze the issues
Advise/recommend
