Thursday, November 25, 2010

Am I taxed when I inherit my Dad's house?

This is a question I'm asked often, and was asked again today, so I thought I'd take a few minutes to share some information about this.

It isn't possible to give a "yes" or "no" answer to this question because a lot depends on the specific facts. But usually the situation giving rise to the question involves a parent dying and leaving his or her only house to a child. In other words, there is only one parent's name on the title to the house (as opposed to a title with joint names on it). And note that a child must be of the age of majority in that province to inherit the house.

Because the house is real estate, there will have to be a Grant of Probate or a Grant of Administration issued by the court before the house can be transferred to the child. There is a probate fee involved, and a fee to the Land Titles Office for their services. These fees are always paid by the estate, even if it means that the house has to be sold to pay them.

Assuming the Grant is issued and all fees are paid, title to the house will pass to the child. There is no capital gain assessed on the transfer of the house from the parent to the child because it was the parent's principal residence. If the Will instructed that the house be sold and the money given to the child, there is still no capital gains tax on the transaction.

If the child inherits the parent's house and later decides to sell it, the tax implications depend on several factors, including whether the house is the child's principal residence or not. So even though the child may receive the home without paying tax, he or she might have to pay tax when the house is sold or transferred.

As a general rule, beneficiaries in Canada don't pay tax on inheritances from Canadian estates.

6 comments:

  1. Thanks.Invaluable clarification. How about
    1. If the Principle house has been registered three ways:- Father, mother and only child? & if one parent dies?
    2. Secondly if the investment properties are registered in the names of Father, Mother and a daughter and unfortunately both the parents pass away in a common disaster?
    3. In Canada, would the nett rental income
    has to be declared by mother, father and a child if they have equal equities in the investment properties?

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  2. I was advised that I could be taxed if I inherited my parents home in the case of a 2nd death. For example, my father passes away and my mother inherits the home. Subsequently, my mother passes away later on and then I, her son, inherit the home. I was explained that in this case, taxes would have to be paid by the estate for the home.

    Is this true?

    ReplyDelete
    Replies
    1. You're actually talking about two different things here. You being taxed and the estate being taxed are two totally different things.

      In Canada, beneficiaries don't pay tax on what they receive from a Canadian estate. So you, personally, won't pay any taxes associated with the estate.

      The advice you received about tax on the house was crap. I sure hope it wasn't told to you by an accountant or lawyer.

      If the house you're talking about was your parents' principal residence (and from the sound of the question, it is) then there is no tax on the house when it passes to the estate. Everyone in Canada is allowed to sell or will their principal residence without being taxed on it. Makes no difference which parent passes away first.

      Note that if your parents own another peice of real estate, like a cabin or rental property etc, there WILL be tax when they pass away and that other property goes into the estate.

      Any taxes that are owed by the estate - capital gains tax, income tax on RRIFs, etc - all has to be paid out of the estate before you inherit anything.

      Lynne

      Delete
  3. Hello Lynne, I have a question regarding this. My mother recently passed away and my father still lives in their home. At the time of settling mom's estate, my brother and I were added to the deed (along with my father), at the time that we removed mom's name at land titles. Both my brother and I are grown and own our own homes (so not living with dad). Dad wishes for us to inherit his house, as indicated in his will. We thought we could avoid probate fees if we added ourselves to the title now, but in hindsight I'm now concerned that we may have created a tax liability for my brother and I if we sell the house following dad's passing. The concern is that my brother and I may each have to pay capital gains tax on a third of the house's appreciation from the date that we registered on the title. How will CRA view this? Thanks.

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  4. I am a us citizen my parents own a cottage in Canada. When they pass what do i have to do to keep the cottage.

    ReplyDelete
  5. HermioneLosAngelesJune 5, 2013 at 10:38 AM

    I am a California resident with a disabled child (under 18) who has SSI (disability benefits). My aunt wants to bequeath her condo in Toronto to me, or me and my brother. If she doesthat, will I be 1.) taxed 2) will this affect my son's benefits since it is income? 3. )If it is split between my brother and me, who do not own our homes currently and are California residents, will we be taxed or made to pay any fees?

    ReplyDelete

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