Principal residence exemption on demise and capital features with joint tenancy

Accordingly, capital features tax might not apply on the time of switch. Although the properties might have been legally held collectively by the 2 of you, the properties might have been nonetheless beneficially your mom’s, till her demise.

What to know in regards to the principal residence exemption

Each Canadian is entitled to have one principal residence that grows in worth tax-free. Earlier than 1982, a pair may have multiple principal residence. So, spouses may every have had a principal residence. 

Your mom had two properties, that means that one among them was rising in worth on a tax-deferred foundation. In your mom’s demise, she can be deemed to have bought the 2 properties and one sale can be taxable, no matter her holding the properties collectively with you. Capital features tax can be payable at the moment.

When did the capital features tax begin?

The capital features tax didn’t exist in Canada previous to 1972. There was additionally a capital features election that your mom might have made if she owned her actual property previous to 1994. A one-time election was accessible in 1994 to report a capital acquire of as much as $100,000 tax-free and bump up the associated fee base for a taxable property like a cottage.

Capital features and principal residence 

So, I’m sorry to report that your accountant is appropriate, Kim. There may be capital features tax payable on one among your mom’s properties. You could have discretion as to which property you deem to be her principal residence and also you might be able to designate one property as her principal residence for some time period and one property for an additional time period. 

In different phrases, if she owned her rental for 20 years and her cottage for 10 years, you would possibly deem her rental to be her principal residence for the primary 10 and her cottage for the second 10, particularly if the cottage was price extra and/or rose extra in worth.

On this instance, half of the rental capital acquire can be taxable and the cottage capital acquire can be tax-free. On this method, you’ll be able to no less than retroactively decrease the capital features tax payable.

One other vital level is that in case your mom didn’t pay capital features tax when she gifted the properties to you, which I assume she didn’t, the properties might technically be topic to probate and the ensuing value of probate charges.