Question

calculates potential expenses and taxes owing at death Earl, a single man of 60, passed away on January 1st. At his death, his assets included: an RRSP with a market value of $250,000 (ACB of $150,000), a $100,000 life insurance policy and an equity fund portfolio with a market value of $112,000 (ACB of $99,000). What is the taxable income on Earl’s terminal return? a) $113,000 b) $156,500 c) $256,500 d) $356,500

Answer 1

Earl's taxable income on the terminal return would be the sum of the RRSP's taxable portion ($100,000) and the taxable capital gain from the equity fund ($6,500), totaling $106,500. However, this figure doesn't match the provided options, suggesting the need for further clarification.

Step-by-step explanation:

To calculate the taxable income on Earl's terminal return, we must consider the income that will be included as a result of his death. Earl’s assets include an RRSP, a life insurance policy, and an equity fund portfolio. The RRSP will be fully included in income at death since the value at death ($250,000) is higher than the adjusted cost base (ACB) ($150,000), which means the taxable portion is $100,000 ($250,000 - $150,000). The life insurance policy will likely be tax-free, as life insurance proceeds are generally not taxable in Canada. However, the equity fund's increase in value will be subject to capital gains tax. The taxable capital gain is 50% of the increase in value, which is $112,000 - $99,000 = $13,000; 50% of $13,000 is $6,500. The total taxable income is the RRSP taxable portion of $100,000 plus the taxable capital gain of $6,500, which equals $106,500. Therefore, the correct answer is not immediately apparent among the provided options (a, b, c, or d), so it is worth double-checking the question's details or seeking clarification. Additionally, it's important to note that probate fees and estate taxes would depend on the jurisdiction and the total taxable estate value.