Life Estate, Tax at Death & Business Needs question: estate plan to pay

LifeEstate, Tax at Death & Business Needs

Marjorie, 74, is widowed. At her death her cottage (adjusted cost base $200,000, now worth $600,000) and her $250,000 RRSP will go to her three children. Use the 2026 capital gains inclusion rate and assume all income on her final return is taxed at 48%. How much tax must her estate plan to pay on these two assets?

A $96,000
B $120,000
C $216,000
D $312,000

Show the answer and explanation

Answer: C. $216,000

The cottage is deemed sold at $600,000: gain $400,000, taxable half $200,000 (s. 70(5), s. 38(a)). The RRSP's full $250,000 is income (s. 146(8.8)) because no spouse or dependent child receives it. Taxable total $450,000 × 48% = $216,000. $312,000 includes the whole capital gain, $96,000 counts only the cottage and $120,000 counts only the RRSP. Source: Income Tax Act, RSC 1985, c. 1 (5th Supp.), s. 70(5), s. 146(8.8) (current to 21 Sep 2026; as at 12 Oct 2026); Income Tax Act s. 38(a) (1/2 inclusion; current to 21 Sep 2026); CRA Guide T4037 Capital Gains 2025 (inclusion rate 50% for 2025; as at 12 Oct 2026).

Common mistake

Taxing registered money at the capital gains rate, or a capital gain in full.

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Walter, 71, a widower, owns non-registered shares with an adjusted cost base of $90,000 and a fair market value of $250,000. His will leaves them to his two adult sons. Assume the 2026 capital gains inclusion rate and that the gain is taxed at 45% on his final return. How much tax will the shares trigger at his death?Ana, 78, a widow, has a $300,000 RRIF naming her financially independent adult son as beneficiary. The rest of her estate goes to her daughter. Assume the RRIF is taxed at an average rate of 40% on her final return. How much tax does the RRIF trigger, and who bears it?Farid, 39, earns $70,000 a year and has group life equal to twice his salary, plus $60,000 of non-registered savings. If he dies, his wife Leila, who nets $30,000 a year, needs $48,000 a year after tax for the family. Other needs: final expenses $25,000, mortgage $310,000, other debts $18,000 and an education fund of $80,000. Capital earns 4% and only the income is spent. How much additional coverage does Farid need?

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Original study material mapped to the public CISRO curriculum; not a real test question.Not affiliated with CISRO, CCIR or any provincial insurance regulator. Verify figures and rules against current guidance before relying on them.