Question: My mom passed away in 2006, leaving her primary residence to my two sisters & I. They live in Canada, but I have lived in the US for years. What is my tax implication?
For the purposes of this response, I assume your mother was a resident of Canada and that the executor of her estate is a resident of Canada.
Residency is important to determine which country has authority to tax the assets of the deceased. Under Canadian tax rules, if your mother was a resident of Canada at the time she passed away, then she is subject to Canadian tax law up to the date of death. If the executor is a resident of Canada then Canadian tax rules will apply to the estate following the death. If any one of the executors was a resident of a country other than Canada then the tax of the estate becomes very complex and may be subject to tax in another country or double taxation.
If one or more of the executors are residents of countries other than Canada, I suggest seeking professional estate and tax advice.
Tax Until The Date of Death
When a resident of Canada dies, the government considers the deceased to have sold all of the possessions immediately before they died. With respect to the residence, if your mother “ordinarily inhabited” the residence until the time of death, then there is no tax from the time the house was purchased until the date of death.
Tax Issues Following Death
After death, an estate trust is considered to have been created and all of your mothers’ assets are deemed to have been acquired by the trust immediately following death. The trust is considered to have purchased all of the assets of the deceased at their fair market value at the time of death.
Since a trust is not a person and cannot claim the tax exclusion on a principal residence (a trust cannot ordinarily inhabit a residence) then a taxable capital gain or loss may be generated if the house is subsequently sold for an amount that is more or less than the value of the home at the date of death. If however, the house was transferred to a beneficiary of the estate (as named in the Will), and that beneficiary or their spouse does not own a principal residence then the home may be transferred as of the date of death and there are no taxable capital gains.
If the house was transferred to all three of you, that is title is transferred, then each beneficiary will have a share of the property and will have been deemed to have acquired the property at its value at the time of death. The two residents of Canada may be entitled to the principal residence exclusion on their share but you as a non-resident cannot claim this exemption.
If the house was sold and the cash distributed then for Canadian tax purposes there are no tax implications for you. I believe (but am not sure) that there are no US federal tax implications either since you should be able to receive an inheritance without tax.
Related Articles
- Capital Gains On The Principal Residence After Death
- Minimizing Capital Gains & Estate Planning
- House Transfer After Death & Capital Gains
- Capital Gains For Non-Residents
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Hello:
My father (widower) is currently living in his lifelong primary residence but due to Alzheimers, may need to transfer into nursing care sometime in 2011. Prior to my mother’s death last year, she transferred to nursing care but we retained my father’s address for her CRA dealings, which they allowed. Once he is transfered into residential nursing care, will his house immediately be considered as not his primary residence any longer, and trigger Capital Gains tax if sold before his death? And would the gain only be based on the time it was not his primary residence?
Or, (I am his POA) if I sold it within the same calendar year, would he be exempt from the tax since he lived in it for part of that year?
Thanks for your help!
When your father will no longer permanently reside in the home, the principal residence exemption would no longer be available from the point he left his home.
Any capital gains would accrue from the date he no longer was ordinarily resident to the point the home was sold. If you sell the house in the same tax year he enters the nursing home, then the principal residence exemption can be used.
You might also want to read through the Nursing Home and Principal Residence article.
Thank you for your response – one other question. In the article you quote, above you mention that if another family member occupied the home for a period of time, the exemption may still qualify as the principal residence. My adult brother (independent) has been living onsite with my dad for over a year, and this is his primary residence – he owns no other property. As he will continue to live onsite once my dad moves into care, and until we decide to sell the house, would this be a case where the home would still qualify as principal residence, and the exemption eligibility remain intact until sale?
Thanks again for your assistance!
Your brother occupying the house would preserve the exemption because it is ordinarily occupied by someone who does not own a home.
Thank you for you reply to my question. It was very informative.
Tax guy,
If i wanted to verify if my dad used the lifetime capital exemption how can i do this? thank you
“Lifetime capital gain exemption”
@John
Contact the CRA
I previously asked a question to which you replied on Dec. 4th.
I am planning to transfer my half interest in the B.C. property to my ex-wife without any financial interest or reward. She will then become the full owner of the property.
The transaction would be deemed, for Canadian purposes, to have occurred at fair market value. There may still be a gain on the accrued gain.
Tax guy,
I’ve learned a lot from your reader responses. Thank you.
Can you tell me what the tax consequences are for Canadians who inherite cash, property or securities from non Canadian residents from a foreign country that is not the united states?
Thanks.
Hello Lee,
The inheritance would be tax free.
could you please send me your contact information as i have a detailed question i would like to ask you
DP
Tax Guy,
Can I add the commissions I pay on my stock trades to the ACB?
John,
Commissions on purchases are always added to the cost base and deducted from the proceeds of any sale.
Hi Tax Giuy,
Sorry for responding to such an old thread.
I’m having a hard time figuring out the capital gains on the primary residence of my mother.
For instance, as the sole beneficiary of her estate, if she leaves her house to me and I decided to keep it as a secondary residence (I already have a principal residence), does the estate pay capital gains? I am aware that I would pay capital gains myself if/when I sell the secondary residence but I’m unclear if the capital gains are also paid by the estate.
Best regards.
Kate,
It is important to understand the timing of events for tax purposes. The deceased is deemed to have sold worldwide assets at fair market value immediately before death. If, at the time of death, the home was the principal residence of the deceased, then the principal residence exemption applies on the deceased’s final tax return.
The estate is deemed to have acquired the property at fair market value immediately following death. If the estate sells the home, then there can be a capital gain if the proceeds of the sale less any fees and commissions (net proceeds) exceed the fair market value at the time of death. The estate would be responsible for this tax and would have to file a T3 tax return.
On the other hand, if the estate transfers the property to a beneficiary, the beneficiary is deemed to have acquired the property at the fair market value as of the date of death. If the beneficiary already has a principal residence and sells the property, then the beneficiary will be liable for any tax consequences. The beneficiary may be able to use the principal residence exemption if they or their immediate family “ordinarily occupied” the property. But this is a little more complex.
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