Common tax, financial issues encountered in estate planning

By Jesse Robitaille

This is the final story in a four-part series exploring numismatic estate planning.

Collectors can encounter several common tax and financial issues, particularly with so-called “capital gains,” when drafting a will or planning an estate.

While people can use certain methods to minimize some taxes, capital gains is typically the “biggest tax issue” for collectors, according to long-time Toronto collector and lawyer Ian Speers.

Canada’s federally mandated tax laws require 50 per cent of a capital gain’s income to be taxed, but the rates at which gains are taxed varies by province.

According to a Canada Revenue Agency (CRA) online publication on capital gains, “you have a capital gain when you sell, or are considered to have sold, a capital property for more than the total of its adjusted cost base and the outlays and expenses incurred to sell the property.”

Coins and other collectibles fall under “listed personal property” (LPP), a type of personal-use property differentiated by its value typically increasing over time, according to the CRA.

“Because LPP is a type of personal-use property, the capital gain or loss on the sale of the LPP item is calculated the same way as for personal-use property,” added the CRA.

Federally, the “basic principle” is if you sell capital property, you’ll be taxed on half of the gains of its income, Speers said.

“If you’re a dealer, it’s going to be deemed business income in all likelihood, and the whole gain is going to be treated as income,” he added.

When someone dies, there’s typically what the CRA calls a “deemed disposition of property” at its market value, so there’s “a capital gain hit at the point of death,” Speers said.

“If the beneficiary is your spouse, basically, the capital gain is deferred until he or she sells it after your death so that the capital gains can be rolled over to the spouse without having a capital gains hit at the time of death.”

Speers recommends keeping a detailed record of what each major coin, banknote, token or other collectible in your collection cost to satisfy any CRA auditors who may come knocking on your door asking for receipts.

“You want to make sure that you’re keeping track of these things. I know, in what is still a predominantly cash hobby, sometimes, your acquisition might not necessarily comply with the $10,000 cash-transaction limits … but if you’re trying to claim the cost back so that you can minimize the capital gains, organization helps. Try to keep records of major acquisitions where you can.”

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