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Succession, Taxation law

More Traps for the Unwary: Who Pays the Taxes?

Mar 11th, 2019

By Barry Landy

The recent case of Picard v. Estate Ligotte 2019 QCCA 254 provide an illustration of what happens when a person makes a will but leaves important financial matters either unresolved or left to resolve by others.

The facts were simple. Appellant Picard was the surviving spouse of Mme Ligotte. She left him a particular bequest, namely an income producing property, free and clear of all encumbrances.

Under subsection 70(5)(a) of the Income Tax Act, when a taxpayer passes away, he or she is deemed to sell and re-purchase all non-depreciable and depreciable capital property. This can create a very large tax bill for the estate of the taxpayer.

However, If the taxpayer is married, his or her capital assets may be transferred to their spouse, with no tax consequences. Subsection 70(6) of the Income Tax Act allows the capital assets to be transferred at the adjusted cost base of the original owner so that taxes are deferred until the inheriting spouse disposes of the asset or passes away, unless an election is made under sub-section 70 (6.2) of the Act to permit the deemed disposition on death to operate.

Picotte argued that his wife intended to leave him the income producing property debt-free, and that therefore the estate ought to pay the capital gain arising on the deemed disposition of the property the instant before death. This would have required the liquidators to file an election with the tax authorities.

It was certainly more advantageous for Picard, a particular legatee, to have the estate liquidators elect to have the deemed disposition immediately before death apply. Conversely, this was less advantageous for the universal legatees.

The will itself provided that the estate liquidators could take advantage of any election permitted by tax laws, where they were of the view that the election was advantageous for one or more of the heirs or for the estate itself.

For the Court of Appeal, the mere fact that the liquidators had the power to take advantage of any election provided by the tax laws meant that they also had the power not to make whatever elections they felt were inappropriate. And so Picotte lost his case.

It seems to me that the real problem in this case was that the deceased did not address her mind to the tax problem she created when she made her will. She essentially failed to tell her heirs what she really wanted to accomplish when she left the income producing property to her spouse.

Furthermore, with all due respect for the Court of Appeal, it seems to me that it does not necessarily follow that because the liquidators had the power to make tax elections, this in and of itself allowed the liquidators not to make tax elections that the Act clearly permitted. It was certainly reasonable for Picard to believe that the liquidators ought to have made the election in question because this would have been advantageous for him!


This publication is of a general nature, is as of the date indicated and is not intended to constitute an opinion or legal advice. The facts and circumstances of your particular situation should be specifically identified and addressed before appropriate legal advice may be given.