Principal Residence, Joint Ownership And Death

by Tax Guy - Burlington Accountant on February 20, 2011 Print This Post Print This Post

This question was originally posted in February 2009. The reader had asked about how the principal residence exemption is handled following the death of the property owner.

Question: My mother died Jan 2007, and left her house and estate to me in her will.

My name was added to the house deed just before her death in October 2006. The home was her principal residence, but not mine.

The house was sold in March 2008 to a third party. The value of the property at time of death and at the time of sale did not change (according to real estate agent).

How do I report this property on income tax. Is it on her estate income tax or mine?

Given that the house value did not change between the death and sale, there should not be any capital gains.  I have searched the net for any guidance on this, can you help me. Probate was not necessary as all documents were in my name as well as hers.

Technically your mother would have been deemed to have sold 50% of her home to you in October 2006 and you would have acquired 50% of the home at that time. Given the above you may have a capital loss or gain from October 2006 until sale and your mom’s estate would have a taxable capital gain from death until sale.

Now the property should have been valued at the time of transfer to joint ownership, death, and subsequent sale to determine the gains or losses.  The CRA may look at comparable property in the area to assess value.

If the intent was to transfer to joint ownership for convenience then there is no capital gain or loss to either you your mom or her estate.  But probate should have been paid.

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

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Bill D. August 8, 2009 at 12:05 pm

Dear Tax Guy,
My mother passed away in Ontario, July 21/09, leaving me, her only child all her property consisting of 90 acres and a large home. My wife and I have lived in that home, in order to care for her, for approximately the last 10 years. We have no other principal residence as we sold it in order to live with and care for her. Are we entitled to any tax exemptions because this is currently our principal residence.


Tax Guy August 8, 2009 at 3:51 pm

@ Bill:

If the home was your mom’s principal residence before her death and the home was left to you and you ordinarily occupy it, then it is your principal residence.

In this case it appears there are no tax consequences.

dave February 27, 2011 at 9:24 am

mom and dad own their primary residence in Canada. son was added to the deed without consideration many years ago “to ease and facilitate financial affairs” in case of disability or death of mom and dad. son became US resident. upon sale Canadian tax was withheld because of non resident ownership. how do you eliminate the witholding as the son had no equity rights to the Canadian property.

Tax Guy February 28, 2011 at 9:38 am

Unfortunately, one of the registered owners of the property was the son and the Income Tax Act requires that the purchaser withhold the tax from the proceeds. There is no recovery for withholding tax in this case.

The son should never of have been added in the first place. Too many things can go wrong.

CanadianInvestor March 10, 2011 at 9:08 am

Re, your answer “probate should have been paid”. This surprises me. Isn’t probate a court fee paid for the service of having the will confirmed by the court and not a provincial estate tax on assets?

Tax Guy March 10, 2011 at 10:30 am

It is a court fee for having the Will confirmed. The point was that the property was re-registered as joint tenants with rights of survivorship (JTWROS) which would trigger a deemed disposition. Since he acquired the property any future gains were taxable to him on his portion of ownership.

In many cases, it’s best to just leave it along and not bother with JTWROS (unless its with a spouse) and let the house be subject to probate. This is because the deceased can claim the principal residence exemption on death. But now he may incur a capital gain that would be higher than the probate value.

JTWROS with anyone other than a spouse is absolutely poor estate planning and anyone contemplating it for estate planning purposes should seek the advice of a lawyer and an accountant beforehand.

JC March 16, 2012 at 11:24 am

My mother passed away in 2010 leaving her estate, including a principal residence to her 2 children and 2 grandchildren equally. The value of the home has steadily dropped and we have still not sold it. How long can this go on before we have to sell really cheap to get out of it and what are the tax implications to her estate and to the beneficiaries? Her home is in a rural area and there are so many homes for sale, it’s a case of too much supply, very little demand.

Tax Guy March 16, 2012 at 4:26 pm

Depending on the time between death and the ultimate sale, there is some opportunity to transfer the losses back to your mother’s final tax return and in certain cases even further. A good accountant should be able to do the reporting, but if you would like some help, contact me directly.

lily April 13, 2012 at 7:20 pm

I own one home only (bought 1999). Since my father died in 2009 I’ve spent most of the time living with my mother in the house she owns in an area a few hours away from my house. I recently changed my address to my mother’s address in order to have a doctor in the area (needed for my own health reasons). I visit my own home several times a year and do not rent it out. If I were to sell it now or a few years from now (might be after my mom dies) would it be considered my Prinicipal Residence?

Tax Guy April 14, 2012 at 1:17 pm

Hi Lily,
It sounds like its still your principal residence. As long as it is not rented out you don’t need to worry although you may be able to rent out your home and still claim the principal residence exemption.

Pat February 4, 2013 at 9:49 am

My father is 82 and his health is failing. Since his retirement 10 years ago, he has resided full time in the family cottage, so it is his primary residence and he has not used the one-time capital gains exemption in the past. His will states that the cottage is to remain in the family for his three daughters. Is it beneficial for him to transfer the ownership now to his daughters with the agreement that he will reside in his residence as long as he is able?

Burlington Accountant February 4, 2013 at 12:44 pm

It’s difficult to answer this question because we really don’t know whether he had a principle residence previously and whether the exemption was claimed. If the cottage has some accrued taxable gains, these would be realizable now.

Tammy May 20, 2013 at 3:23 am

My aunt is a Canadian citizen and she owns her primary residence. She has never married and has no children. She would like to will her house to some of her nieces and nephews, but some of them are US citizens. She was told by a friend that she couldn’t will the house to any US citizens, so she plans to will the entire house to one of her Canadian nephews and then trust that he’ll do the right thing with the house at some time in the future, meaning distribute proceeds of the sale of the house to the other nieces and nephews. He has no principle residence. Her sister doesn’t want her to do that as once he gets the house, he has no obligation to give anything to anyone else. Is there some way she can will the house to the nieces and nephews regardless of citizenship or is is possible to draw up a legal agreement between the nephew and the other potential beneficiaries forcing him to agree to a distribution in the future?

Tax Guy - Burlington Accountant May 22, 2013 at 8:01 am

The information she’s received about US citizens receiving an inheritance is incorrect. There is no reason why she can’t leave the home to her estate, have it sold and distributed to all beneficiaries.

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