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Thursday, January 27, 2011

Is there capital gains tax when I sell an inherited property?

The following is a question I received from a reader. It's a variation on a question that I hear a lot, so I thought I'd address it here. Just a caveat - when you ask me questions here on this blog, I don't get to know the whole picture, so my answers are necessarily general. You should always back up this information by talking to a lawyer or accountant in person.

"My father died this past November and left everything to myself and sister, including his house/property. If we sell this property this summer, do we have to claim a capital gains? If so, on what part?"

On the transfer of the property from you to a third party, you are probably going to be liable for capital gains tax. The period that you're on the hook for is from the date you acquire it to the day you sell it. Since this period of time will be only a matter of months, the property might not incur too much of a gain in that time, and therefore your tax will be small. You and your sister can split the tax between you as you are both inheriting the property.

Note that if the property in question is your principal residence (which doesn't seem to be the case here), the tax is not payable on your sale of it, because this is an exception to the general rule of capital gains.

Now let's look at the first transfer - that of the property from your father to you. Since you describe it as "house/property" rather than just "house", I'm assuming there is something more than just a house. When these items transfer to you, there is no tax for you personally to pay. However, there certainly may be taxes that must be paid by the estate.

When your father passed away, there would have been no capital gains tax payable on his home (principal residence). Note that only 3 acres of property can be included in the principal residence exemption. If there was an additional property, such as a cottage or revenue property, there is capital gains tax payable on that property. Keep in mind that if the property sits in the name of the estate for a long time, there may also be tax payable on the increase in value while it's in the estate name.

As you can see, it seems a simple question but the answer is complicated. This is why I recommend that you sit down with an accountant to figure out the tax details.

108 comments:

  1. My mother's 6 quarters of land were sold at the end of January 2010. These quarters have been in her possession since 1972. She passed away in 1996. The quarters were probably worth on the average of about $20,000 at the time of purchase which would be a total of $120,000. They were sold at a total sale of $1000072. Each of eleven family members have inherited the moneys from this sale. What capital gains would there be in this case if any?

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    1. There should be no capital gains tax assessed against your Mom's principal residence. Keep in mind that the principal residence exemption doesn't cover an entire quarter, but only a small number of acres. So there will be capital gains tax on the remainder of the "home" quarter, as well as on all of the other quarters. To get a ballpark of how much the tax would be, subtract the ACB ($120,000) from the sale value ($1,000,072). The difference between them is the capital gain. Half of the gain is taxable. The tax should be paid by your Mom's estate before any moneys are paid out to the 11 beneficiaries. I'd use an accountant for this, given the large amount of money and the number of people involved.

      Lynne

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    2. farm land is exempt

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    3. Farmland can be exempt, but not always. The exemption for farmland applies when land that is being actively farmed is transferred to someone else who is actively farming. There are other requirements as well. The fact that land is zoned as farmland is not enough to create an exemption; it must be actively farmed.

      Lynne

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  2. My principal residence was in Canada and now it is in the USA. My Canadian home is up for sale. When this home sells, wlll I have to pay a capital gains tax since my principal residence is in the USA? We return to CAnada every summer to clean up the home and then return to the states.

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  3. My question is related to capital gains versus probate fees. My mom's house has increased in value by $250,000 since it was purchased in the forties. Upon her passing, hopefully not for awhile yet, the house will be passed on to my sister, brother and myself. Is it better financial planning to go through probate or transfer the home to the children before her death ? We live in Nova Scotia and all of us presently own our own home. Capital gains would apply, if we go that route, but at what date...initial purchase price or date of sale of the house.
    Thanks, Barry

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    Replies
    1. There's a lot more involved in financial planning than just what to do with the house, but since I don't know about any of the rest of it in this case, let's just talk about the house.

      When your Mom disposes of the house, there will be no capital gains tax owing, assuming that it's her principal residence. Doesn't matter who receives the house (in terms of tax) because the transaction that's being taxed is the house leaving her possession.

      I am not in favour of putting a person's home into the name of the children while that person is still alive. Any one of you three kids could get divorced, or get sued, or a dozen other things that could cause a loss for everyone involved. The risk to your Mom is too great, in my view. Also, why create a tax situation for the rest of you if you don't have to?

      Also, please re-think the concept of passing the house from your Mom to all three of you. Is there any reason why the house shouldn't be sold and the proceeds divided? Having that many siblings on a title pretty much never works out well.

      Lynne

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    2. Many thanks for your quick response. You have helped clear up some concerns we had and now we are better equipped to move forward, choosing probate over capital gains.

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  4. Hi Lynne
    My dad just passed away in February, my mother is still alive and so everything obviously reverted to her. I am her soul child and on her death everything will pass to me. She owns her own house as do I. I have two children both young adults. One of my children has special needs but with support he will manage to live on his own which is both his and my preference. Our crazy plan is that we will move into my mothers house. Eventually make it into two appartments so that my chid with special need has somwhere to live. I will live in the other appartment. My other son will either rent my current house to live in or I will have to sell it to finance the renovation on my mothers house. I have a hensons trust set up for my son with special needs. I do need to make sure I have as much money as possible. So here is my question. How can I keep as much money as possible for the plans we have?

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  5. Hy Lynne, I am an only child and therefore my mom and I put the house on her name as well as my own. I know I will have to pay capital gains when she passes and I sell the house. My question is say her health declines to the point where she will have to sell and move into nursing home. Will I still have to pay capital gains on my half?

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  6. Good Day Lynne
    You have probably have answered this before. My mother lives in a large house and her will reads that all proeeds to be divided equally amongst the four children still living.The question keeps coming up about capital gains on the sale of the house after her passing. i feel the will is quite explicit division amonst the four no capital gains after the sale of the house

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    1. It sounds as if you mean that the will says there is to be no capital gains tax. If so, you should know that the will has no say in whether there is going to be capital gains tax assessed. Having said that, there should be no tax when the house transfers to the kids, or if it's sold quickly by the estate and the funds split between the kids. For your own sakes I sincerely hope your mother isn't going to transfer the actual house to the four of you, as that is disastrous 99% of the time for reasons mostly unrelated to tax. Now if the house is transferred to the four of you and later you four decide to sell it, there WILL be capital gains tax on the sale (if it increases in value), no matter what it says in the will.

      Lynne

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  7. My husband is an only child. His 95 year old mom is in a care home. Her will states everything is left to my husba nd. He wants to sell her home and seem to have problems. He is PO to banking but not for home. His lawyer says he has to file for guardianship and now he says that her assets are more than his. So now I have to make up the shortfall.. lawyer has added her house as part of her assets and the house is not yet sold. How? This has gone on since Feb. Meanwhile this house is sitting there costing money. Taxes, water , power and someone to cut grass.. we are so stressed. There is always something else that pops up. Are we getting the runaround with this lawyer? By the time this over there will be nothing for my husband.

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    1. The lawyer is right that your husband can't sell his mother's house. She is alive, so the will is of no use. you've said there is only a power of attorney for banking that doesn't extend to the house. That sounds normal too. I assume that his mother doesn't have capacity to make a new power of attorney to cover property, otherwise that would have been done. If that's so, then the next step is to ask the court to appoint your husband as trustee. I'm not going to quibble over the fact that you said "guardian" instead of "trustee" because these roles are called different things in different places.

      All of that made sense to me, but the next part about you making up the shortfall makes no sense at all. I have no idea what you mean by this. So what if the mother's assets are more than your husband's assets? And shortfall for what? Why are your personal assets and those of your husband involved in this at all?

      Yes it makes sense that your mother's house would be included in a list of her assets. Doesn't matter whether it's real estate or cash, it's still an asset.

      You are not paying for the taxes and water etc yourself, I hope. The asset belongs to your mother-in-law so she should be paying for those. Your husband has the bank POA so that shouldn't be a problem.

      Applying for guardianship or trusteeship can be a complicated court procedure, but not so complicated that it takes 7 months. Either there is something else involved that you haven't mentioned, or someone is dragging his heels.

      I know you're concerned about the assets being depleted but keep in mind that when the house is sold, your husband doesn't get the money. It belongs to his mother until she dies, and if the money is used up, for paying for her care, for example, then he could well end up with nothing.

      Lynne

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  8. Hi Lynne,

    My husbands father passed away last December, and there are 3 siblings. The house was sold to one sister, no issues. There is a parcel of land that was purchased by my father in law probably about 40 years ago. We had it appraised around $64,000. We are looking to sell it. Are we going to have to pay capital gains, and on what portion. The value has not changed sinse last Dec. We don't know what he paid for it originally, but probably not very much.

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    1. Hi Lori,
      From what you've said, yes I would expect that there will be capital gains tax to be paid. This is because a) the land is not your father-in-law's principal residence, and b) he didn't pay much for it and it's now worth $64K. I'm not sure what you mean by "we" are going to sell it and "we" might pay taxes, unless you and your husband are executors of the estate. Assuming that's the case, you (i.e. the estate) pays tax on one-half of the increase in value, calculated from the day your FIL bought it to the day it's sold.

      Lynne

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  9. My father passed away in 2008 and left a cottage to my sister and I. We paid the capital gains on his 2008 income tax return at a property value of 250K-original cost. We sold the property in July 2012 at 230K. How do we apply the capital loss (250-230=20K)? Will it be against the 2008 income taxes for my father, or mine and my sister's income tax for this year?

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  10. I immigrated to Canada in 2002. I owned a house before immigrating. I sold the house in 2011 and had the money transferred to Canada in 2012. how does capital gains apply.

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  11. If you inherited a property, and you’re planning to sell it, one of the best things to do is to sell it as soon as possible to avoid a higher capital gain tax. You won’t be exempted from capital gain tax because the property increases in value since the date of death of the person from whom you inherited the property. Inheriting a property from your parents can be quite complicated, so it is better if you have a legal advisor to help you with this matter.

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    1. I wholeheartedly agree Audrey. It breaks my heart to see how many people get into legal, financial or family trouble just because they didn't sit down with someone with expertise in these matters.

      Lynne

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  12. What are the tax consequences if a US citizen or an Indian (India) citizen who owns significant stocks in a privately held Canadian mining company dies and wills the assests to his brother who is in US or in India.

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  13. In June 2011, my father added my brother and me on title of his property, my brother lived in the house, my father was in a home and I living somewhere else, my father passed away December 2011. My brother moved out in may. We sold the house nov 2012 . Do we have to pay capital gains?

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  14. hi
    my parents immigrated from Canada a couple of years back. they have sold their farm back in home country (India) and paid taxes on sale as applicable there. This sale happened right before they came to Canada on immigration. the money has been invested in a term deposit in the home country since.
    Do they need to declare in particular while transferring the money to Canada? Or do they only need to declare the interest earned on the term deposit.

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    Replies
    1. You need an accountant to help you with this. Sorry I can't be of assistance.

      Lynne

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  15. Lynne,

    Fantastic web site. I have really learned a lot. Didn't find the answer I needed though.

    My FIL died in 1982. House in his name. My MIL never formally transferred ownership. So house is still in the name of my FIL's estate.

    Now my MIL is nearing the end, and she has a Will, but what will happen to the house?

    My FIL had 2 sons before marrying MIL and they had 2 daughters together.

    I don't think my FIL had a will. MIL just kept living in the house.

    Trying to help my wife with the huge headache of sorting out the house when her mom passes.

    Sisters don't feel comfortable talking about the issue with their mom.

    Thanks so much!!

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    1. From what you've told me, it seems likely that your father-in-law's house is not in the name of his estate, but in his name. This may seem like splitting hairs but it's vitally important. If it's in the name of his estate, his executor can transfer the house according to his will, or his administrator can distribute it according to law.

      However, you've said that you're not sure whether he had a will, so it seems unlikely that he had an executor or that anyone did anything about his estate. That's why I suspect it's in his name, not his estate's name.

      If your father-in-law had a will and you could find it, you would have to probate it to transfer his home. Assuming that there is no will, someone would have to apply to the court to become his administrator and thereby gain legal authority to do something with the house.

      Right now, the person with the first priority to apply for administration is his wife, but it sounds as if she is in no shape to deal with that. So the right to apply to be administrator is going to pass to his children - all of them. They'll have to figure out who is going to do that. Once that's done, the house will be dealt with according to intestacy law in your father-in-law's province.

      For heaven's sake don't let anyone put the title to the house in the names of all four children, unless they want the fighting to start immediately and carry on indefinitely.

      Yes, it's going to be a headache to sort out, but it won't be impossible.

      Lynne

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  16. I am estate executor for a frend, John, who owned a house that was his principal residence for many years. Five years before his death, he stored most of his furniture and household effects in the basement and garage, rented the house to tenants, and relocated to a town 70 km away for work. Under these circumstances, he could have retained principal residency until his death had he not been advised by an accountant to claim CCA against his rental income. (The accountant was unaware that John was terminally ill; John was ignorant of the tax implications of claiming CCA.) As a result, John's estate is on the hook for significant capital gains tax. As an executor, can I designate the house as his principal residence and amend his past tax returns to revoke the CCA claims that were made in error?

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    Replies
    1. This is something you'd have to run by an accountant.

      Lynne

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  17. I am confused. My grandmother had a 10 acre farm which was where my father lived and raised his children including myself and my siblings. Upon my grandmothers passing, she left the farm for my father to live on and heldit in trust for her 3 remaining grandchildren including me.When he passed there was just the land title transfer of the property to surviving grandchildren and there is no need to probate. The farm is the primary residence for my sister and has been for my father and grandmother. As you expect there is some family conflict with my sister living there and myself and my handicapped sister. She wants to live there as long as she can and we could use the money for ourselves. She had an offer for 3 million but turned it down. My question is regarding capital gains tax. If for some miracle she decides to sell how would the capital gains effect us. When the farm was purchased by my Grandmother she paid 20,000 and at the time of her passing the fair market value was 240,000. When my father passed it was 3,000,000. It has stayed at about that value since my father passed in Nov 2011. The property is still in his name at the land title office held in trust for us grandchildren. My head is spinning, what do you think?

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  18. Hello,

    I am wondering about my own situation.. my parents put my name on our cottage's deed many years ago (20 or so). It's not a principal residence as she has her own home. My father has since passed, and now both my mother's and my name are on the deed. I know at some point my mother will pass, but I don't want to sell this property.. I want to keep it indefinitely. Would I have to pay capital gains tax when she dies, or because I already owned the property would it not be applicable? (ie, it won't go to the estate as I will already own it... we have full simultaneous joint ownership currently, as opposed to 50/50)

    Thanks for your help!

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  19. Hi Lynne,
    I am an only child and will be inheriting a rental property (at some point) that my parents own.
    My parents primary residence is currently in a retirement home. I understand I have to pay tax on the capital gain if I inherit the rental property but if we put my name on the deed while they are both alive, does that alleviate the tax?

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    Replies
    1. Even though your parents reside in a retirement home, they can still own a primary residence. This is assuming that they pay for cost of care, as opposed to owning a unit in the retirement home. If they own the house that you call the rental property, and they don't own any other, they can designate that property as their primary residence.

      Lynne

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  20. Hi Lynne,
    My wife passed away last September. She had owned an apartment for our personal use since 2003. When she came down with cancer a year before death, the apartment was legally made into joint 50/50 ownership as were all of her bank accounts. Q1:Do I have to report a deemed disposition and capital gain on her 2012 final return? Q2: Do I have to report the same for my Return? Q3; If so is the capital gain for my wife based on 100% appreciation from the Cost Base at time of acquisition to when it was made joint plus further appreciation on 50% ownership to the time of death? Q4: In my case will capital gain be considered from when it became joint until a) the time of death or b) the end of 2012. OR- Hopefully I will just have to declare the deemed disposition and not incur any tax as the spouse and only beneficiary.
    Thank you for your help.

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  21. Lynne,
    Several years back my grandma passed away. Her trust was in her sons name. He inherited all the farm land. He gifted my mom 40 acres of it. It was put in her name and listed agricultral land. When my dad had a stroke, they sold there residential house with 2 acres, and the additional land plot of 40 acres. The land was connected property. The last two years they have had to pay a large amount in capital gain. Im just wondering
    If the tax accountant was correct in there filing? If anything was overlooked. Thank you for your time.

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  22. Lynne,

    My dad has been added to the title of my grandpa's principal residence. When my grandpa passes away, what tax will my dad have to pay? Just capital gains tax on any appreciation in value between the time of death to time of sale? He has power of attorney and living will privileges established as well(my dad). Also, any assets will be split between my dad and his brother 50/50. I was unsure whether the lump sum my dad receives upon sale of my grandpa's house would be treated as income within a given year. Thanks!

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    Replies
    1. I really think this is something that you should go over with an accountant.

      Lynne

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  23. Lynne,

    I inherited my parents' house three years ago. It has taken that long to sort through the contents and prepare the house for sale. The house was evaluated at the time I inherited it, so I have a baseline value. My question is, are improvements (specifically, redoing the roof, painting and plastering, replacing the kitchen floor) deductible expenses that could reduce capital gains? No one has occupied the house since I've owned it.

    Thank you.

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    Replies
    1. Yes, improvements can be used to raise the adjusted cost base of a property and thereby reduce capital gains tax. Check with an accountant to make sure you get all the deductions!

      Lynne

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  24. Hi, My wife and her sister inherited their father's primary residence a couple years ago. They've been allowing their mother, who was not married to their father at the time of his death, to live in the house. The house was assessed at $375,000 following the death. They are now planning to sell the house and expect to get around $550,000. Is the capital gain then the difference between 550,000 and 375,000 divided by 2? How much of that capital gain is taxable. Thank you.

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  25. Thank you for this excellent and informative blog!

    Our lawyer advised us to get paid professional appraisals for my recently deceased Dad's home, home contents, etc.

    We paid for the home appraisal. Real Estate agents are now telling us the fair market value is higher. My Dad's accountant is telling us this is not good -- we will need to pay higher capital gains tax if we sell higher than if the probate is properly accessed and we pay just probate tax (+/- a more likely smaller variance in a good appraisal vs. expected sell price). Our appraiser and lawyer are advising we need both a Probate Tax Appraisal which is typically more conservative from a Fair Market Value Appraisal. Our accountant disagrees and advises we can use a free appraisal from a Real Estate agent.

    Questions:

    1. If we intend to sell the house ASAP, do we need both a Probate Tax Appraisal and Fair Market Appraisal?

    2. If we do not need both, is it acceptable to use a Real Estate agent to provide the Fair Market Value Appraisal? (The appraiser said he'd do one of these too for a small fee; Real Estate Agents will do for free).

    3. If we do not need both, can we just not submit the appraisal we paid for? Or, should we submit all appraisals (thinking to get a couple by Real Estate agents) and explain the difference.

    We are really questioning our lawyer at this time. We called CRA and they advised since my Dad doesn't have any really unique, high value items we can do the house content appraisal ourselves taking pictures and researching on places like Craigslist an anticipated value for things. We're detail oriented and diligent and just want to do this correctly and fairly with pictures and support for value assigned but would like to avoid the $4-6k cost for a house content appraisal we received in a quote.

    Question: Do you agree that executors & beneficiaries can prepare the content appraisal themselves?

    Thanks so very much for your help.

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  26. This comment has been removed by a blog administrator.

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  27. My brother and I share POA for our mother. Which has been enacted. We are also her trustees. We are both named equally in her will. Our father is deceased.

    Our Mom suffers from Alzheimer's disease and has recently gone to live in a care home. Up until then (3 months ago) my brother and his wife chose to live with and care for our mom so she could remain in her home as long as possible.

    My brother and his wife are still living in moms house and taking care of the property at this time. They would like to continue living there and make it their home.

    I agree with them staying there and don't have any issue with them having the house. I believe my parents would approve as well as they built the home and would want to see the family blessed by it.

    The concern is whether or not they can legally stay there without paying rent to my mom. I don't see that it is necessary. I also don't see the point of them purchasing the house and having to pay mortgage interest to a bank since my brother will eventually inherit the property.

    Will this cause issues for us later? Will we be forced to sell the house? What suggestions do you have for us so that this will go smoothly?

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  28. When it concerns tax and gains, it is always better to consult the professionals. In this case, an accountant or a lawyer. Thanks for this article though. It is very useful as we laymen are always in doubt when it comes to sensitive issues like these. We are thinking of selling the house that is currently leased out as storage. This piece of info is indeed very beneficial for us.

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    1. I agree Cameron, about consulting a professional. When it comes to taxes, people really should see an accountant. I always hope that people who read my blog will use the information they get here as kind of a starting point so that they feel a bit more in the know when they do go to see the lawyer or accountant.

      Lynne

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  29. Hi Lynne,
    My Mother has a small cottage on a small piece of land in NL that she wishes to transfer to me and I would like to keep. How do we proceed? The value is only approximately $10,000

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    1. Hi. You have a couple of options. You could hire a lawyer to take care of the transaction for you. If you don't want to do that because the cost of the property is small, you might want to go yourselves (both of you) to the land titles office to fill in the paperwork. You will have to file papers there that transfer the title from her to you.

      Lynne

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    2. hello lynne,
      i'm in a similar situation as the previous poster. my parents want to transfer their "farm" (actually more of an undeveloped quarter section) into my name before they, in their words " get too old and funny", but it seems as though they will have to pay capital gains tax on the land as though it is sold at fair market value if they do this. is this really the case?
      is there a way to put all 3 of us on the title without it resulting in massive taxes? i'm an only child so there is no one else to put on the title.
      any suggestions would be greatly appreciated.
      thank you in advance!
      c

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  30. My grandmother died in 1996. My other died in 2003 without taking care of the estate properly. The house was JUST sold recently for $300,000. The "taxation value" of the house in 1996 was $118,000. For the purposes of capital gains, should the value in 1996 be what the house SHOULD have sold for (which I believe could be higher than the government's assessed value for tax purposes), or do we have to go with the assessed value? Thanks.

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    1. You're going to need an accountant to sort out the tax implications. From a legal perspective, you might expect that your grandmother's will, as well as your mother's will, would most likely have to be put through probate simply to deal with this.

      Lynne

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    2. Thanks....and it all certainly has. The house has been sold and for except for the tax implications for myself and siblings it has been dealt with. It's just that property valuations are often far less than what the properties often sell for, so even if the house was "valued" by the city at $118,000, if it could have been sold for $160,000, I certainly would like to use that number if allowed. Thanks again.

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  31. Lynne,
    I plan to buy a condo for my parents to live and they don't have any other properties. If the condo is under my name, is there a capital gain when they pass away and I sell the condo? Or I should just buy the condo and put the their name in the title?

    Thanks a lot,
    Howard

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    1. Hi Howard,
      If you own the condo and it's not your principal residence, when it's sold you will be subject to capital gains tax.

      If your parents own the condo and it's their principal residence when it is sold, they will not be subject to capital gains tax.

      Make sure you consider more than just tax before you make this move. Consider that if your parents' names are on the condo, you will have no control over the asset. They could put a reverse mortgage on it. They could be sued for something like a car accident, and lose the condo.

      Lynne

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  32. Thanks Lynne. So looks like my bank mortgage specialist gave me the wrong information - as long as the property is for the parents' principal living, there is no capital gain even if it is under her own name. She said her another client did it but she cannot disclose the other client's information to me.

    Thanks again for your help,
    Howard

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    1. I don't know who you refer to when you say the property is under "her" name, but I think you have misunderstood. Just to be clear, the only way there is no tax is if it is the owner's principal residence. Don't confuse the fact that your parents live there with the legal concept of principal residence. If you own it and it's not YOUR principal residence, there will be tax when it's sold.

      Lynne

      Lynne

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  33. Everyone tells you that estate planning is a necessity, and yet no one really details exactly what estate planning is or what the goals of planning your estate should be. This article details the what and why of estate planning in Canada. Thanks for great job..

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  34. Lynn,
    My parents initiated a Transfer of Title of their home to me back in 2009 each retaining a life estate. At the time I thought it was a good idea but now they are in their late ‘80s and their marital relationship has since deteriorated to the point that they can’t live under the same roof. I need to sell the home and use the proceeds to purchase a condo for each of them. I’m concerned about the capital gains tax in Canada. The property has appreciated over $300K.
    As the owner of the deed this will all fall to me – correct?
    What are the tax implications?
    Any suggestions to consider would be greatly appreciated. I know I still need to sit down with a tax accountant but any heads up on the nature of the conversation would be appreciated.

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  35. I am thinking about selling my cottage property. It is currently not my principal residence. I want to avoid payment capital gains tax. I have owned the cottage property for 15 years and became the sole owner in 2008 when my spouse died. The value from the time we bought it to now has increased $300000. Can I gift the cottage to my adult children (neither currently own a home) and let them sell it without paying capital gain tax? Or how do I go about changing the cottage to my principal residence?
    Any questions or comments would be appreciated.
    Thx

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    Replies
    1. If you give your cottage to your children, you will have to pay the capital gains tax at the time you transfer it. The tax is on the gain while you owned it, regardless of how you dispose of it - sell it, give it, or you pass away. So that won't solve your issue.

      Certainly it's possible to claim your cottage as your principal residence, as long as the situation meets the criteria (for example, though you don't have to live there full time, it has to be available to live in and not rented out). Your accountant is the one who knows the ins and outs of capital gains tax the best, so I suggest you meet with him/her as there could be significant tax involved.

      Lynne

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  36. Daughter lived with parents all her life until parents both died. Last parent to die will specified that residue of estate which included the home be shared equally by daughter and her six siblings. Twenty years later, the property is still in the name of the Estate of the last parent to die. Daughter is now in her eighties and has always lived in the house. Her six siblings wish to waive their rights to any inheritance of the house. That would leave the right to the house solely to the daughter that always lived there. What documents are necessary to waive the rights? Is there any issue with the house being a principal residence of the daughter, the default owner under the will?

    ReplyDelete
    Replies
    1. There is no problem with beneficiaries waiving their inheritance, or part of it. Doing so will require a document that is signed and witnessed. Probate and associated documents vary from province to province, so there is no one specific form to which I can point you. You may end up getting a lawyer to make these up for you.

      One thing I want to point out is that the house is not the principal residence of the daughter, as she does not own it. The estate still owns it. This means that during the time period from the last parent's death to the transfer to the daughter, there will be capital gains tax if the property has increased in value. Make sure that everyone understands what the tax will be, and agrees before signing any waivers on who is going to pay it. Talk to an accountant if you are not sure what the tax might be.

      Might I also say, congratulations on having a family that communicates so well, and considers each other's needs. This is so rare.

      Lynne

      Delete
  37. We specialise in CGT and as your appointed tax advisors we would prepare your Capital Gains Tax computations, making sure all your entitlements of claims to reliefs and exemptions are carefully researched, sought and filed for with the Revenue.

    ReplyDelete
  38. Our Capital Gains Tax service can be provided as an individual service or may be combined with other tax and accountancy related services as part of an annual package that we can offer as your appointed Accountants and Tax Advisers.

    ReplyDelete
  39. i live in an apartment, and frequent my water front getaway during the off winter season,....if i sell am i subject to pay the 25% tax on the gain ?

    ReplyDelete
    Replies
    1. On which property? Are either or both of them in Canada? Do you own or rent the apartment? Do you own or rent the waterfront property? The taxation rate on capital gains is 50% of the gain.

      Lynne

      Delete
  40. The family cottage was owned by my grandmother and father. Upon her death a FMV was determined and ownership changed to my father. At the time of his passing the cottage was only in his name. A FMV was determined and title was then changed to his spouse, my mother. Ownership was then, at the same meeting with the lawyer, changed to joint with my mother and myself. When calculating the capital gain for my mother's taxes, the proceeds of disposition would be 50% of the current FMV but when calculating the ACB would it be: (1) FMV determined when my father was sole owner plus improvements since then at 50% and the balance to be calculated upon her passing or (2) FMV and improvements at 100% now and then any more improvements added to the ACB at the time of her passing (and using the FMV at that time as well) to calculate the other 50% of the capital gain?
    Thank you.

    ReplyDelete
  41. I am an executor to friend's estate. Her 2015 apartment assessment was $ 155,500, which is the best estimate for the value at her death. Apartment was her principle residence. I will use that value for calculating her total estate for probate application. After grant of probate I can transfer title to my name and sell the apartment. Say that I can see it in couple months and receive net 165,500. making $10,000 "profit" is that a taxable capital gain for the estate when estate tax return (T3) is prepared.

    Thank you Lynne for an answer.

    ReplyDelete
  42. My sister passed away 3 years ago unexpectedly without a will. We have finally gone through the probate process and my dad has administration over her estate. The only thing she has left right now is a condo that we have been writing bank drafts each week to keep the bank from foreclosing it. Now that we have admin, we have been trying to sell it for the last 3 months without any luck even after a price drop, meanwhile we are still paying the mortgage and going broke doing so.

    The most viable solution now seems like we should rent it out. So my dad wants me to have title transferred to me but I already own a condo in Burnaby so this is now going from a PR to an investment property. If I do decide to take title and then rent it out, will I have to pay tax on a capital gain of some sort? What will happen to all the money we paid in he past 3 years on behalf of the estate?

    ReplyDelete
    Replies
    1. Because your sister passed away without a will, her estate is distributed according to provincial intestacy law. You don't mention a husband or children so I assume your sister didn't have them. This would mean that her estate would be inherited by her parents.

      I know that sometimes it takes a while to sell an estate property, and obviously you are all doing your best to deal with that. I get everything up to that point, but I don't really understand your dad's reasoning behind transferring it to you. Legally he can do it, by transferring it (as estate administrator) to himself as beneficiary, and then to you. But is it a good idea?

      If your father only wants to rent it out while he looks for a buyer, there is absolutely no reason for it to be in your name. The estate can rent it out. Your father as administrator can legally do that.

      There is no capital gains tax when the house transfers from your sister's name to the estate because it was her only property and her principal residence (at least it appears so from the facts). At the time the house transfers to you, there may be capital gains tax assessed, if the property may have increased in value while it was in the name of the estate. This tax must be paid by the estate, not by you, but in this case you and your family are funding the estate, so would end up footing that bill.

      I don't know your family so I mean no disrespect, but if the house is put into your name only, and they refuse to help with further payments, that leaves you on the hook alone. When you sell the property, you would be liable for any capital gains tax. That tax would be payable by you personally, and not the estate, if the house is in your name.

      In my experience, putting someone's name on a title when "everyone knows" that the property"really" belongs to someone else is a recipe for disaster. It seems in this case like unnecessary complications leading to risk for you, with no real upside.

      Lynne

      Delete
    2. Thanks for the reply Lynne. Sorry I wasn't more clear.

      My dad's reasoning behind me taking title is that he would rather me keep it as an investment property rather than dropping the price again in order to sell it. At that point, the proceeds from selling it may not even be enough to cover the mortgage.

      He is about 70 years old now and so, if he was to have title transfer to him, he would have to reapply for a mortgage, which he will not qualify for, which is why I am the only person.


      We thought about renting it out while trying to sell it, but our realtor has a good point. No one would want to rent month to month knowing that it will eventually be sold and they will have to move again.

      The other complication is that the way we are paying the mortgage. Right now, under the estate, we are writing bank drafts to pay for it weekly. They wont let us change the bank account to pull from either of ours so its becoming a bit of a hassle.

      I guess my real question is, if I do want to take title of her apartment, and then rent it out, I obviously would have to pay the title transfer fee, but would there be any other types of fees such as property transfer tax and capital gains to me personally? You explained the estate portion of it which I get but what would happen to me personally if I decided to keep the property and apply for the mortgage?

      Delete
  43. Hi Lynne, I do need to make sure I have as much money as possible. So here is my question. How can I keep as much money as possible for the plans we have?

    ReplyDelete
    Replies
    1. Seriously? I don't know your age, location, marital status. I don't know what assets you do or don't have. And I have no idea what these plans are that you talk about. To top it all off, I'm not a financial advisor. So I know this wasn't a serious question and that you're just having a bit of fun with me. Here is my advice: win the lottery. Then you'll have all the money you want.

      Lynne

      Delete
  44. My wife is going to get half the sale proceeds from a house she is on title with her mother. My wife is not on title for any other properties and this house used to be her primary residence. It was supposed to be her inheritance but there are problems with the family and she is being given half now at time of sale. Will she be expected to pay capital gains on this? Thank you for your help.

    ReplyDelete
    Replies
    1. If I understand your facts, your wife owns half of the house, and she doesn't live there. To my knowledge, those facts do not allow her to claim her half of the house as her principal residence. Therefore, the sale of that half would trigger a capital gain for her. The half of the house that her mother owned (presumably the mother's principal residence) would not trigger a capital gain, and would not be taxable. For greater certainty, consult an accountant, as they can run circles around me in the number-crunching department.

      Lynne

      Delete
    2. Yes she owns half of it, and yes her mother lives there i was wondering if it was supposed to be her inheritance would work in her favor at all but probably not. She has made an appointment to see an accountant. Thank you for your reply.

      Delete
    3. I see what you mean, but no it isn't going to help. She would have been better off tax-wise if her mother hadn't put your wife's name on it, because none of it would have been taxable.

      Lynne

      Delete
  45. Thanks for the great information. It is very useful and informative.
    Roger Perry

    ReplyDelete
  46. My father died a few years ago and left a business to my sister and I. We are considering selling it and want to know if we need to pay capital gains on the difference in the price it was assessed at when my father passed away and the selling price we get for it now. My understanding was that this was the case but recently someone mentioned to me that we would not have to pay anything if the business had a loss on the books that was greater than what the capital gains would be? Any clarification greatly appreciated.

    ReplyDelete
    Replies
    1. There is no way I could tell whether, in any specific case, any tax would be owing. The general rule is that if the business is worth more now than it was when your dad passed away, you will be taxed on the gain. However, if there is a loss on the books, there is no gain to tax. You need to see an accountant and give him/her specific numbers to know for sure.

      Lynne

      Delete
  47. Hi Lynne,

    Older article but helpful. Thanks. I just want to clarify one thing (and see if it's still valid for 2015)

    My father passed in 2014 and the probate tax was paid on the house (his principal residence). An appraisal just after his passing put the house 500k and the house was recently sold for 560k. I've been told that the estate doesn't have to pay any capital gains on it but the beneficiaries (3 of them) will have to pay taxes on the split difference ($20,000 each which means taxes would be paid on half of that amount).

    Is this true?

    Thanks!
    -T

    ReplyDelete
  48. Hello Lynne,

    I have been trying to get a response for the following question for while and unable to resolve it, I hope you can help? My dad gave his children (me included) each a property that he had built with his own hands. About 8/9 years ago. 2.5 years ago he made it official as a legacy and it was signed by a notary. I have been a resident of Canada since 2011 and have not leaved back in France since. What can you tell me about capital gains? Will I be paying tons of taxes if I want one day sell the property? Do I have to wait for a number of years? Thank you. D.

    ReplyDelete
  49. with regard to farmland, no residence, just a quarter of pasture land. My brother has been renting it from our mother, in her will he has first option to purchase it at a reduced price amount is in the will. If she has been getting rent money from it is that considered actively farming it? Or is she just a landlord investor?
    Trying to figure out if there would be capital gains on the money he would pay the estate.

    ReplyDelete
  50. Hello Lynne,

    My mother passed away in 2007 and my sister was named executor. In 2009 my brother and I had signed a consent for Application's Appointment as Estate Trustee Without a Will. My sister and I continued to live in my mother's home without speaking to each other and in 2014 she moved out and bought a house. I only know of this from other family members. She has locked 2 bedrooms in my mom's house and claims it as hers and we are not allowed to use it. I pay utilities and keep maintenance for the house. My brother's wife has been telling me to move out of the house as they want to renovate and sell the place.
    With the vested 3 year rule as part owner of the house can my sister use my mom's house as collateral or put a lien against the house without us knowing?

    ReplyDelete
  51. When my mother died 25 years ago, my father had added my name and my brothers name as joint owners to his house (principal residence). At the same time, he added my brothers name to a recreational cottage property (the agreement was that my brother was to pay me out for the cottage on his death). I have lived in my father's house for 35 years, sometimes paying rent or taking on costs. My brother has his own princple residence with his family. My dad is now in a care home. My brother just recently "forced" me to sign a document gifting this house back to my father so we could sell the house. He did this to avoid the capital gains he would have to pay (so my brother has 3 properties). Does this avoid capital gains for my brother? I have no capital gains because my father's house is my principal residence and only property.

    ReplyDelete
  52. My mother (principal residence) has left her estate (property and contents) to my brother and I in her will (she has left her estate to only 2 of 4 siblings as they live out of country and have not 'contributed' to her life out here). If we sell the property soon after her death, do we pay capital gains tax? Originally the property was bought for 120k and is now worth 800k.

    ReplyDelete
    Replies
    1. There is no capital gains tax when a principal residence is sold, given away, or transferred to an estate.

      Lynne

      Delete
  53. Hi Lynne...Excellent blog! My Mother passed away in Nov 2014. Their home of 50 years passed to my Dad obviously. My Father has just recently moved into a seniors care facility (initial stages dementia). My sister and I have been cleaning the place out and fixing it up (clean up was no small chore :-P) ) . He currently gets about $1700 from various sources...but the “independent living” senior’s residence is $4,000. There is a few year’s cash in the estate at this rate. There is no mortgage on the property. I have intended all along to put his home up for rent to help offset the expenses. There are 2 possible scenarios here. 1) If he is no longer capable of living in an "independent living" facility and we put him in an "assisted living" facility (at half the cost as it is subsidized). At this point we may sell the home for him. 2) If he passes away, then we sell the home. So…what are the ramifications with regards to Capital Gains in both cases. The bottom line is...to retain as much long term value in the estate as possible, are we better off selling now?...or is renting it out a sound decision?
    Thx,
    BF in Calgary

    ReplyDelete
    Replies
    1. I assume that you or your sister has been named under an Enduring Power of Attorney, otherwise you can't sell the house or rent it.

      If your father moves into a care facility, he can still claim his house as his principal residence as long as sometime in the previous year either he lived there or one of you kids lived there. The principal residence designation is important because there is no capital gains tax payable on a principal residence.

      If it is not sold within a year, he will still be able to claim the exemption for the years during which it was his principal residence.

      If you rent out his home, he can still claim it as his principal residence for an additional time, which I believe is 4 years. This means there would be no tax payable if it were sold during that time.

      Now I must caution you that I'm not an accountant, and tax is an accounting subject. I've told you the basic rules as I understand them but you would be well advised to confirm them with an accountant. They are the tax gurus, not us lawyers.

      Lynne

      Delete
  54. Hi Lynne,
    My mom passed away in December of 2014. She left her house to my sister and me. It was my mom's primary residence and my sister has also lived there for several years. We sold the house 6 months later but in this crazy real estate market on the West Coast there was a significant increase in what the house sold for and what it was a evaluated at for the probate amount of value at time of death. The transfers of title all were done at the same time. How will capital gains tax be assessed?

    ReplyDelete
    Replies
    1. There will be a capital gain payable on the amount the house increased in value after it left your mom's name. The gain took place while the house was in the name of the estate so the tax is payable by the estate.

      Lynne

      Delete
  55. Hi Lynne,

    I'm an executor of an estate. The estate has one real property (not yet sold but has been transferred to me) and was the principle residence of the deceased. At the time of probate application, the value of the home was assessed at $300,000. Because of the Vancouver BC market being very heated lately and the time that has passed, the value of the property has risen to $400,000. If the property sells at $400,000 today, does that mean there is capital gains tax to be paid on the $100,000 by the estate? The probate fees has already been paid based on $300,000.
    Thanks.

    ReplyDelete
    Replies
    1. Yes, the estate would be liable for tax on the increase. When you prepare the income tax return for the estate, you'll have to claim that capital gain as income.

      This won't affect the probate fee. The inventory you prepared for probate is a snapshot of the situation on the day the deceased passed away. Later changes in value do not require an adjustment of the fees.

      Lynne

      Delete
  56. Hi Lynne
    If I have a will in adult children's name and they keep it as their primary residence after me, will they be charged some tax?
    Also, do they have to mandatory sell it or can they live in that house?
    Thanks a lot !

    ReplyDelete
    Replies
    1. This is a very confusing question but I'll do my best. In your first sentence, I think you mean you have a house that you are going to leave to your children in your will.

      I assume because we are talking about tax that your children are all adults. So that makes me wonder, why on earth do you think they will all want to continue living there? I assume that eventually some or all of them will marry and raise their own families. Do you really think they are all going to live in that house together?

      In my view, you need to think a little more logically. Why not allow the house to be sold and the children share the proceeds? I can tell you from bitter experience that the odds of several adult children agreeing to sell a house, the price of the house, the purchaser of the house, the timing of the sale, etc, is almost nil. Throw in a few discussions about who has paid more for the heat and who paid for the new roof, and you have created a seriously unworkable situation for your children. You are not being realistic.

      Anyway enough of the rant. I'll try to answer what you actually asked. If all of your children own the house and they all live there, on the eventual sale they won't be charged tax. If one of them actually owns a different home or cabin as well, then that person may well be charged tax.

      It's not mandatory for the house to be sold right away, but it will be sold sooner or later.

      Please talk over your plans with an experienced estate planner. There may be a better way to achieve the goal you're aiming for.

      Lynne

      Delete
  57. Hi Lynne; this is a great service and I hope you can provide an opinion for me.
    My mother died in 1995 and left her house (as part of the estate) to my father and me.
    The house is now being sold and its value has increased by $500K. The will stipulates that the net proceeds of the sale shall be divided with half to my father (it was still his primary residence) and half to the estate (me). Will my share be subject to capital gains? If so will I be taxed on all $500K or just half of that? Thanks for any help you can give.

    ReplyDelete
    Replies
    1. I assume that the house belonged only to your mother. I make this assumption because a) you call it "her house" and b) she could not leave it to your father in her will if his name was on it. I'm also assuming that the house has not ever been put into the names of you and your father, since you are still talking about following the will.

      If your father's name was not on the house it was not his principal residence. Yes, I know, he lived there. But you have to own a property for it to be a principal residence.

      So on the sale of the house, the whole gain should be taxable because neither of you holds the property as a principal residence.

      If your name and your father's name WERE put on the house back in 1995 and he lived there all this time, then his half is not taxable.

      Lynne

      Delete
  58. Hi Lynne
    My mother passed in 1999 leaving a condo, with a life estate to my oldest brother, condo passes to 3 remaining children on his death.
    Property is registered at land title office, as tenants in common with a life interest, does this mean the brother with the life interest has a 1/4 share of the property.
    My oldest brother was the executor, lawyer used was his friend, I feel we have been blindsided, because will states after life tenants death, the condo would go to remaining 3 children.
    Condo is abandoned for 6 months, per year, brother is a snowbird, condo is in a "no rentals allowed" building.
    Brother has changed locks, I am concerned about waste, water damage last year from a leaking toilet cost 7 thousand dollars in repair to condo below, because condo is abandoned, so long.
    Do I have a right as a remainderman to acquire a lawyer for a partition and sale of the property for the reasons above, other remainderman are in agreement, worried about the neglect and future costs due to neglect.
    Would the life interest take most of the equity of the condo, if sold, he is 65 years old? Can you recommend a colleague in Vancouver who could represent me?

    Sincerely
    Carol B

    ReplyDelete
  59. Hi Lynne
    Brother /Executor, has a life interest in condo willed by my mother. 3 siblings are the remaindermen.
    Lawyer who settled the Estate of my mother and a friend of my brother's said my mother's wishes were not clear.
    The lawyer registered the condo as all four being tenents in common with a life interest.

    My mother's wishes were clear enough.
    Life tenant, until death then to be devided equally to 3 remaindermen.
    Should a life tenant be on the land title?
    Re:Waste-- condo is left vacant for 6 months per year, life tenant is a snowbird. Condo has a "no rentals allowed"clause. Only those on land title are allowed to rent, or live there.
    I am homeless due to unfortunate circumstances, I am concerned re: the neglect of the condo, and future major repairs.
    There has been a toilet leak that cost 7 thousand dollars, to unit below.Insurance has a $5000.00 deductible. Brother has changed the locks, also. We do not have a good relationship with him.
    Do I have a right to inspect property once per year at least,?
    Do I have enough proof of neglect to ask for a partition and sale of the condo, all remainderman are in agreement, can remaindermen make such a request?
    My brother is 65, will he be given most of the equity in the condo, even though I believe my mother intending him to have only a life interest, nothing more, according to the will?
    Can his name be removed from the title if a court reviews the will?

    Sincerely
    Carol B

    ReplyDelete
    Replies
    1. There are a whole lot of questions here and a lot of information to sort through. I suspect that you threw in that bit about the lawyer being your brother's friend because you think the lawyer might be favouring him. May I just point out that we lawyers simply do not risk our license to practice and therefore our entire careers and incomes to help an acquaintance gain a few thousand extra dollars. Also remember that the lawyer does what the client says to do. The lawyer doesn't just to around putting random names on titles. This really hits a nerve with me!

      Anyway, on to your questions. You say that the instructions are clear enough but the lawyer says they are not. I assume that the lawyer is working from the will. I don't know whether you had additional information in the form of conversations with your mother about her intentions. If so, all of you are stuck with what's in the will, since the law says that it contains her wishes. Conversations you might have had with her, unfortunately, do not. Without seeing the will I couldn't say whether her wishes really are clear or not.

      If I understand it correctly, the title now stands that four of you are tenants in common, but one of the four has a life interest in the entire property. That's not a very common arrangement, but I can see how it would be set up to ensure that the one person has a place to live for his lifetime. The only difference really between the plan as it stands and the plan you believe was to be put into place was the addition of the fourth person as an owner.

      As remaindermen, you have the right to insist that the property be maintained in such a way that the value of the asset is protected. This means insurance, property taxes, and maintenance/repairs. It doesn't mean your brother has to live there 12 months a year. It doesn't mean that he must rent it to earn income either. Whether or not there is "waste" is not a legal issue for you as long as the property is maintained for the day the life tenant passes away.

      I'm not a real estate lawyer so I'm not making any comment about what it takes to partition/sell or how often inspections can be made. It's just not my bailiwick.

      How do you figure that your brother "will be given most of the equity in the condo" if all 4 of you are tenants in common?

      If you have a copy of the will, I strongly suggest that you take it to a lawyer who specializes in wills and estates. Go through the clauses that set up the life tenancy. Are the instructions really as clear as you think they are? If they really are clear and the executor is carrying out a trust or plan that is incorrect, you can ask a judge to review and enforce the instructions in the will. The optimal result would be an order from the judge that the title to the condo be corrected. If it turns out that you can also prove that the life tenant is damaging the property, you might get further relief from the court such as an order ending the life tenancy or financial consequences to the tenant.

      Keep in mind that all of this can get very ugly and very expensive, so mediation might end up being a good option for the four of you.

      Lynne

      Delete
  60. My mother passed away December 13 2013. I sold her home in August 2015. Do I have to pay capital gain? I filed her taxes on time but her home was not sold at the time of filing so now I'm wondering do I have to file another tax return? I went to a tax office and seen an accountant(CPA)and he says I owe nothing.

    ReplyDelete
    Replies
    1. I can't think why you'd ask me a tax question if you've already asked a CPA, since accountants know a lot more about tax than lawyers do.

      It's my understanding that you do have to file another return because the estate owned assets during the last year. Then ask for a clearance certificate to prove all taxes are paid.

      Lynne

      Delete
  61. Hi Lynne

    5 siblings inherited property and sold it 10 years after mothers death. I understand that we have to pay capital gains on 50% of the amount, my question is at what or whose rate? Thanks.

    ReplyDelete
    Replies
    1. I assume that the property had the siblings' names on it and not the estate name. Each sibling will declare his or her portion of the tax on his or her personal income tax return. In other words, once you know what the gain is, divide that amount equally between the five owners. Therefore each person will pay at his or her own tax rate (depending on income, deductions, etc).

      Lynne

      Delete
  62. Hi

    My wife inherited her mum's house 8 years ago. She is now selling it. The lawyer says there will be 25% capital gains. When her mum died, the lawyer handling the estate transferred the house to my wife at a $1 value. So now the lawyer handling sale of house says the capital gain will be from $1 to current sale value and not the value at the time of inheritance. This seems very wrong and that either it IS wrong or the lawyer should never have transferred the house at $1 value. Can you shed any light on this please.

    My wife is dual nationality (Canadian/British) and has lived in UK for 25 years so not Canadian domiciled.

    Thanks in advance
    Ash

    ReplyDelete
  63. Hi Lynne,

    Please clarify for me, who owns a property in 'transmission of land', the executor or the estate?

    I ask because my uncle has lived in my deceased grandmothers house since she passed 16 years ago and he is now ready to sell. He and my mother were co-executors and equal beneficiaries of the estate. He would like to claim the principle residence exemption for his portion of the sale, however, upon reviewing the land title we discovered that it was still in transmission of land, 'owned' by them as executors but the final transfer to them as beneficiaries was never completed. Will my grandma's estate now have to pay capital gains tax on the difference in price since her death?

    Thanks

    ReplyDelete
  64. Hi Lynne. I have a property that I bought in Toronto as an income property. After remortgaging the property several times for renovations, the property is now worth over a million. My question is, will my children have to pay capital gains on the difference between the original purchase price of the house and now (difference is about $800K) or will they be able to pay off the mortgage to the property and then determine capital gains once all debts have been cleared upon my death. Thanks.

    ReplyDelete
    Replies
    1. I'm not sure I understand the question. The determination of capital gains tax has nothing to do with the payment or non-payment of the mortgage or the estate debts. The amount is the same regardless of what else is in the estate.

      One thing I do want to point out is that the starting point (the adjusted cost base or ACB) is not just the original purchase price. You can also add in the cost of all those renovations, which reduces the amount of tax payable.

      The fact that I don't really get the question probably means that it's over my head, so the best thing to do is ask a tax accountant.

      Lynne

      Delete

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