question archive At the time of her death, on October 2, 2011, at the age of 97, your client, Ima Deceased, owned the following assets, all of which are to be transferred, according to her will, to her son, who is her only beneficiary: Cost FMV Term deposits $ 75,000 $ 75,000 Shares of Bell Canada Enterprise (a public corporation) 250,000 370,000 In 2011, she had received the following amounts up to the date of death: Fees for acting as an art consultant $20,000 Pension income 36,000 Interest on term deposits 1,500 Dividends on Bell shares 8,960 Interest on the term deposits is payable on April 30 and October 31
At the time of her death, on October 2, 2011, at the age of 97, your client, Ima Deceased, owned the following assets, all of which are to be transferred, according to her will, to her son, who is her only beneficiary: Cost FMV Term deposits $ 75,000 $ 75,000 Shares of Bell Canada Enterprise (a public corporation) 250,000 370,000 In 2011, she had received the following amounts up to the date of death: Fees for acting as an art consultant $20,000 Pension income 36,000 Interest on term deposits 1,500 Dividends on Bell shares 8,960 Interest on the term deposits is payable on April 30 and October 31
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At the time of her death, on October 2, 2011, at the age of 97, your client, Ima Deceased, owned the following assets, all of which are to be transferred, according to her will, to her son, who is her only beneficiary:
Cost
FMV
Term deposits
$ 75,000
$ 75,000
Shares of Bell Canada Enterprise (a public corporation)
250,000
370,000
In 2011, she had received the following amounts up to the date of death:
Fees for acting as an art consultant
$20,000
Pension income
36,000
Interest on term deposits
1,500
Dividends on Bell shares
8,960
Interest on the term deposits is payable on April 30 and October 31. Since April 30, 2011, when the above $1,500 was paid, additional interest of $1,275 accrued to the date of death. Also, a dividend of $1,120 was declared on the Bell shares, payable to all shareholders of record on September 30, 2011, but the cheque was not mailed until October 6, 2011.
Required:
- Briefly explain the determination of when the terminal income tax return is due.
- Compute Ms. Deceased’s income for 2011 and recommend to the executor of her estate the most appropriate manner to report the income to minimize income tax.
At the time of her death, on October 2, 2011, at the age of 97, your client, Ima Deceased, owned the following assets, all of which are to be transferred, according to her will, to her son, who is her only beneficiary:
|
|
Cost |
FMV |
|
Term deposits |
$ 75,000 |
$ 75,000 |
|
Shares of Bell Canada Enterprise (a public corporation) |
250,000 |
370,000 |
In 2011, she had received the following amounts up to the date of death:
|
Fees for acting as an art consultant |
$20,000 |
|
Pension income |
36,000 |
|
Interest on term deposits |
1,500 |
|
Dividends on Bell shares |
8,960 |
Interest on the term deposits is payable on April 30 and October 31. Since April 30, 2011, when the above $1,500 was paid, additional interest of $1,275 accrued to the date of death. Also, a dividend of $1,120 was declared on the Bell shares, payable to all shareholders of record on September 30, 2011, but the cheque was not mailed until October 6, 2011.
Required:
- Briefly explain the determination of when the terminal income tax return is due.
- Compute Ms. Deceased’s income for 2011 and recommend to the executor of her estate the most appropriate manner to report the income to minimize income tax.
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Answer:
Part (A)
The executor will have at least six months from the date of death to file the terminal return, unless the normal filing deadline for the year (i.e., June 15, 2012, since she has income from business) is later.
Since the six-month period ends on April 2, 2012, the terminal return can be filed on June 15, 2012.
Part (B)
The executor should file a terminal return and a rights or things return as follows:
|
Terminal return |
|
|
TCG on Bell shares [½ × ($370,000 – $250,000)] |
$ 60,000 |
|
Consulting fees received |
20,000 |
|
Pension income received |
36,000 |
|
Interest received |
1,500 |
|
Grossed-up dividend received [1.41 × $8,960] |
12,634 |
|
Accrued interest (not receivable at death) |
1,275 |
|
Income to be reported on terminal return |
$131,409 |
|
Rights or Things return |
|
|
Grossed-up dividend receivable at date of death (1.41 × $1,120) |
$ 1,579 |
