A lawyer must be knowledgeable about basic concepts of income taxation affecting the individual taxpayer.1

When advising a client on estate planning2, a lawyer should ensure that the client is aware of and understands the income tax consequences of death and of transferring particular assets, whether by will or beneficiary designation or inter vivos sale or gift, including conveyance of the fee simple title or conveyance of an interest in joint tenancy or tenancy-in-common.3

If the client’s assets are complex4 or if the client’s personal situation is complicated5 or if the client or a proposed personal representative is a non-resident of Canada6 or if the client or an intended beneficiary are U.S. citizens7 or if the client has foreign assets8, and the potential income tax issues or the foreign legal system are outside the lawyer’s experience and knowledge, a lawyer may decide to consult with or refer the client to another lawyer or accountant9 with relevant experience and knowledge.


1. “A solicitor is required to bring reasonable care, skill and knowledge to the performance of the professional service which he has undertaken … The requisite standard of care has been variously referred to as that of the reasonably competent solicitor, the ordinary competent solicitor and the ordinary prudent solicitor.”

“A solicitor is not required to know all the law applicable to the performance of a particular legal service, in the sense that he must carry it around with him as part of his “working knowledge”, without the need of further research, but he must have a sufficient knowledge of the fundamental issues or principles of law applicable to the particular work he has undertaken to enable him to perceive the need to ascertain the law on relevant points.” per LeDain, J. in Central & Eastern Trust Company v. Rafuse, 1986 CanLII 29 (SCC), [1986] 2 SCR 147, 31 DLR (4th) 481, at [58] and [59].

2. “ … the solicitor does not discharge his duty by simply taking down and giving legal expression to the words of the client …” per Boyd, C. in Murphy v. Lamphier, (1914), 31 OLR 287.

3. Income tax liabilities can be triggered by sales to non arm’s-length persons at less than fair market value or by gifts, including deemed dispositions as a result of the death of the taxpayer: Income Tax Act, RSC 1985, c 1 (5th Supp).

Where a taxpayer has disposed of property to a person with whom the taxpayer was not dealing at arm’s length for no proceeds or for proceeds less than the fair market value or to any person by way of gift, the taxpayer is deemed to have received proceeds of disposition equal to the fair market value: s. 69 (1) (b).

The deceased taxpayer is deemed to have received proceeds of disposition equal to the fair market value of all property immediately prior to death: s. 70(5). This can result in inclusion of the entire value of certain registered assets (such as retirement savings plans and retirement income funds) or one half of deemed capital gains on unregistered capital assets (such as real estate (other than the principal residence) or marketable securities) as taxable income in the deceased taxpayer’s final T1 individual tax return.

4. For example, there are complex rules relating to corporate assets and trust assets. Both corporations and trustees are separate taxpayers. There are specialized deferrals or exemptions relating to farming (including forestry) and fishing property and qualified small business corporations.

5. If the taxpayer has a spouse, it is possible to transfer assets on a tax deferred basis to that spouse or to a spouse trust: s. 73(1) and (1.01). Likewise, gifts on death to the surviving spouse or a testamentary spouse trust may occur on a tax deferred basis: s. 70(6). A spouse and a common law partner are entitled to the same income tax treatment under the Act. Note that “common law partner is defined in s. 248 as follows: “with respect to a taxpayer at any time, means a person who cohabits at that time in a conjugal relationship with the taxpayer and

(a) has so cohabited throughout the 12-month period that ends at that time, or

(b) would be the parent of a child of whom the taxpayer is a parent, if this Act were read without reference to paragraphs 252(1)(c) and (e) and subparagraph 252(2)(a)(iii),

and, for the purpose of this definition, where at any time the taxpayer and the person cohabit in a conjugal relationship, they are, at any particular time after that time, deemed to be cohabiting in a conjugal relationship unless they were living separate and apart at the particular time for a period of at least 90 days that includes the particular time because of a breakdown of their conjugal relationship.

Note that this definition does not determine the rights of a common law partner under provincial laws governing division of property on separation or divorce and succession on death.

6. If the transferor is a non-resident of Canada, the Act imposes joint liability for income tax on capital gains on both the vendor and purchaser of Canadian real estate. The purchaser is entitled to request the vendor to obtain a clearance certificate under s. 116 of the Act and to require a 25% holdback until the certificate is delivered. See Real Estate Standard 3.10. A trust resides for the purposes of the Act where its real business is carried on, which is where the central management and control of the trust actually takes place. The residence of the trust is not always that of the trustee. It will be so where the trustee carries out the central management and control of the trust where the trustee is resident: Fundy Settlement v. Canada, 2012 SCC 14 (CanLII), [2012] 1 SCR 520.

7. United States citizens are taxed on their worldwide income even though they may be resident in Canada for Canadian income tax purposes. The Canada-U.S. Tax Treaty may alleviate double taxation in appropriate circumstances. A U.S. citizen resident in Canada is required to file income tax returns in both countries. Likewise, the personal representative of a U.S. citizen resident in Canada will have to file a U.S. income tax return for the year of death, a U.S. estate tax return, and a Canadian income tax return for the year of death.

8. If the Canadian resident client owns assets in a foreign jurisdiction (or even another Province in Canada), legal documents prepared in Nova Scotia may not be valid to achieve the client’s estate planning goals. In particular, if real estate is owned by a deceased client outside Nova Scotia, the law of the foreign jurisdiction or Province will govern. It likely will be necessary to initiate probate proceedings both in Nova Scotia (if the deceased is ordinarily resident within the Province) and also in the other jurisdiction. See Wills Drafting Standard (N.B. – this is a reference to what will be a future standard).

9. See NSBS, Code of Professional Conduct, Halifax: Nova Scotia Barristers’ Society, 2012, Commentary [6] to rule 3.1-2: Competence:

A lawyer must recognize a task for which the lawyer lacks competence and the disservice that would be done to the client by undertaking that task. If consulted about such a task, the lawyer should:

  1. decline to act;
  2. obtain the client’s instructions to retain, consult or collaborate with a lawyer who is competent for that task; or
  3. obtain the client’s consent for the lawyer to become competent without undue delay, risk or expense to the client.

Additional Resources

Income Tax Act, RSC 1985, c 1 (5th Supp)

Canada Revenue Agency:

Canada Revenue Agency: