PROBLEM SIX

Peter Carletti is a professional architect employed by a Halifax$-$based architectural firm. He is $58$ years old, is

married, and has a $22-$year$-$old son. Peter's spouse, Carla, recently returned to university and will complete a law

degree in three or four years. Their son, who lives with them, also attends university and will continue to do so

for at least three years.

Peter has asked you to review his family's financial position and tell him what tax planning opportunities are avail$-$

able. Also, he does not have a will and would like you to tell him what tax consequences may occur at the time

of his death. He provides you with the following information:

The Carlettis' home in Halifax is owned by Carla. She acquired the property five years ago for $$200,000$ with

funds received from her father's estate. The home is now worth $$230,000$ and has no mortgage. She has no

other assets.

Last year, Peter purchased a vacation home on the Atlantic coast. The property cost $$150,000$ and has

already increased in value to $$180,000.$ Upon purchase, Peter assumed the mortgage of $$90,000,$ which

has an interest rate of $8\%.$

Peter owns a term life insurance policy that will pay $$400,000$ upon his death.

Peter's annual salary is over $$210,000.$ Carla currently has no income. Annually, Peter contributes to an

RRSP$,$ which is now worth $$1,400,000.$ The plan invests primarily in secure common shares and earns cap$-$

ital gains and dividends.

Peter owns a rental property, for which he paid $$240,000($land $$40,000,$ building $$200,000)$ five years ago.

It is debt$-$free and currently worth $$300,000($land $$50,000,$ building $$250,000).$ The UCC of the building is

$$166,000.$

Peter owns the following other investments:

$$50,000$ of Nova Scotia Hydro Bonds, which earn interest of $10\%$

Bank term deposits $($one$-$year terms$)$ of $$170,000,$ which earn $9\%$ interest

Common shares of a Canadian public corporation, which are valued at $$90,000$; he purchased the shares

two years ago for $$40,000$

Peter has not sold any capital property in the past $10$ years.

Required:

Prepare a brief report for Peter outlining the tax consequences that may occur on his death. The report should also

suggest what he might do now to minimize annual taxes during his lifetime. Assume a tax rate of $50\%$ for Peter.