Capital Gains On The Principal Residence After Death

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

A visitor to the Canadian Tax Resource Blog wrote in asking a rather interesting question about how an estate was taxed on the capital gain from the sale of the deceased’s principal residence.

The visitor was the executor of an estate where the deceased’s principal residence was included in the assets of the estate. At no point during the life of the deceased was the property rented nor was it ever used for anything but the deceased’s principal residence. However, the CRA has reassessed the estate and determined that there is a taxable capital gain on the difference between the date of death and the subsequent sale date.

When The Principal Residence Exemption Applies

When a taxpayer dies their principal residence is deemed to have been sold at the date of death. The estate of the deceased therefore acquires the property at the property’s value at the date of death. The deceased is entitled to claim the principal residence exemption up to the date of death.

If the terms of the Will leaves the property to an adult child who does not have a principal residence for tax purposes, then the beneficiary may claim the principal residence exemption from the date of death forward.

If the property is sold outright to an outside party then a taxable capital gain or loss will be incurred based on the value of the property as of the date of death and the subsequent sale date.

In order to maximize the principal residence exemption, you should leave your principal residence to a beneficiary who will be eligible to claim the principal residence exemption. This means you will have to leave the property to an adult child who does not own their own home.

Contact me to find out how I can help you file the final tax returns for an estate and minimize taxes by taking advantage of all tax planning opportunities.

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.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

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