Hello,
I would appreciate your help with the scenario below:
Mother died April 2019. Before her death she added her 6 children name to the deed of the vacant property, resulting in her owning 1/7 of the property. It is my understanding the children has filed Mother final tax return and obtain the clearance certificate. However, the vacant property was not disclosed on the Tl neither the list of asset to obtain the clearance. Minimal income was reported on Mother T1.
Mother has an estate account. Now the children wants to sell the property and would like to know how much the estate will be taxed on Mother 1/7 of the capital gain. The property is value $45K , ACB $5,000.
Should the final T1 be amended to include the disposal of the property to the children, since the gift is taxable. The clearance certificate was issued, is it possible to amend the T1? Will the estate pay taxes on Mother portion of the capital gain.
"Mother died April 2019. Before her death she added her 6 children name to the deed of the vacant property, resulting in her owning 1/7 of the property. "
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No, putting names on deed by itself does not do that.
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“It is my understanding the children has filed Mother final tax return and obtain the clearance certificate”
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Not possible. Today is only 12 April 2020, so it would have been impossible to do this already - CRA’s service standard for that processing is much longer.
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“However, the vacant property was not disclosed on the Tl neither the list of asset to obtain the clearance. Minimal income was reported on Mother T1.”
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If that is the case, it sounds like a false tax return was filed.
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"Now the children wants to sell the property "
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The children cannot legally sell what they do not own.
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Its not clear who exactly your client is, but I would strongly recommend that the Estate’s CPA and the Estate’s lawyer have a serious discussion with the Executor of the mothers estate, with the originals of the documentation in hand, before the children get to mess things up further. The Executor appears at large risk of being in for some large personal liability…
The children should be only taking such actions as based on what the Executor has advised them what is happening and based on what documentation the Executor has provided to them.
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Assuming that the vacant lot is not QPF, the value of the land title update should have been the current FMV at that date which would go 100% on the mom’s return.
Yes it is possible for an early filed 2019 T1 to have received its Clearance Cert already. I have received a few before Covid-19 hit.
Yes it is possible to amend a return that has gotten clearance.
The T1ADJ should use 100% of the current FMV at date of the deed/land title update as the proceeds.
Putting all the kids name on the deed does not split the initial income taxes payable to the mom. It only creates a new ACB going forward that they now split.
Note that the OP said that the one issue was the {now} “vacant property”. There was actually no mention of a “vacant lot”, so things are not clear. Could be a (whole, partial) Principal Residence, or (former) income property, a mix, or something else.
Also, note that the OP does not state sufficient details to determine any dates or any values of any of the Dispositions. There must have been at least one Disposition, but from what was posted, it is not possible on these incomplete file details to determine what that disposition was, either in size, or timing, or value.
A 31 December 2019 tax year end (deceased) TX21 carefully processed by Estates Audit after analyzing properly reported real estate dispositions and the Will list of Assets with Real Estate? - Very very slim chance, IMHO, especially as it seems that at best, an incorrect T1 was filed with misrepresented assets…
As to property dispositions and the basis for any reporting thereof, as noted regarding insufficient information, we cannot even tell if there were any dispositions at the various Title changes, whether for legal or for tax purposes.
Bottom line, I guess I am really suggesting that there is a great deal more here than at first meets the eye, so great caution should be exercised, IMHO…
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Thank you all for the responds. The Mother passed in 2018 not 2019, I do apologize for the for stating the wrong year.
I recently spoke to the family. The Mother changed the deed title and transferred the vacant lot to the children on Dec 15th, 2017. The lot was separate from the principal residence. Hence the disposal should have been reported on 2017 tax return. A T1 ADJ for will need to be prepared. Thanks again for all the responses.
" The Mother changed the deed title and transferred the vacant lot to the children on Dec 15th, 2017. … Hence the disposal…"
As I noted above
“… putting names on deed by itself does not do that.”
If it were me, I would have a meeting with the Executor and obtain copies of the actual supporting written documentation. Perhaps the Executor has a very fuzzy notion of what “Resulting Trust” may mean. The executor might find it helpful to discuss this, and get written advice from, the Estates lawyer…
The lawyer might recommend some curative post-facto documentation, for example, Consents - but the Executor should take professional legal advice on that.
Also, who exactly is your client?
If you are talking in terms of preparing a T1-adj for 2017 for the deceased, “the family” is likely not your client. (It would be unusual to have 6 co-executors)…
I assume that you have a copy of the Will in your working paper files - if it were me, I would check it carefully…
Also, in your first post, you mentioned that “the children would like to know…”
You might possibly be running into Privacy issues - would be wise to take care about who exactly is/are your client(s), and ensure that you have confidentiality disclosure waivers in your engagement letter(s)