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Deceased Person Capital Gains

What will be tax consequences of a deceased person, principal residence if the spouse name is not in the title and there is no will of the deceased person?

If a primary residence is occupied by spouses, then there is no legal requirement of having both on a title. This is a law of Ontario, at least

There would be no tax on the gain if it was covered entirely by the Principal Residence Exemption. In Ontario, the value received by the spouse is governed by the Succession Law Reform Act and would depend on whether there are children. Under this law, the spouse is entitled to the first $200,000 of estate assets and a share of the residue, depending on the number of children. The spouse only receives the entire estate if there are no children.

That could affect the tax on the house (if the gain was not covered by the PRE) since only the assets going to the spouse could be eligible for tax-deferral. A good example of why we should be encouraging all clients to get their Wills in place.

It seems to me that the reason why this is not clear to you at the moment is that you are putting the CART before the HORSE.

Right now, you have NO client, and NO legal authority to do anything with the Deceased’s tax return, OR his house.

Assuming the events occurred as you outlined, right now the Estate has not yet even taken title in the first instance, because NOBODY has yet done anything, and nobody has the legal authority to do anything.

It’s not clear why the spouse has not taken any steps to apply to court to be appointed Administrator (of the Intestate estate), but the spouse or the children should get some legal advice so that they can do so.

After somebody has acquired some legal status, that person could approach you for next steps, such as Tax matters.

As Kevin said, its a lot better if people arranged Wills and other paperwork before dying…

Each province has its own set of family and property laws which apply when someones die without a will or “intestate”.

I am not up to date with Ontario’s laws. This is the Alberta example.

Eventually someone will need to be named the Executor, whether the Public Trustee or someone else who is legally eligible. A court filing moves the control of the estate to the Executor. Once an executor is named, this executor can sign as the legal representative of the Estate of “First Name + Last Name”. You need this signed and the authorizing court document attached to empower you to act on behalf of the deceased and his estate.

A lawyer will need to work out the details of:

  1. itemizing and valuing the contents of the estate at the time of death,
  2. listing the legally allowable beneficiaries,
  3. settling all unpaid debts, bills, and estate fees including taxes
  4. allocating the estate among the legally authorized beneficiaries of the estate
  5. listing and transferring title or possession of all assets to beneficiaries
  6. documenting the estate valuation at the time to death
  7. accounting for all disposition of assets transferred from the estate to the beneficiaries.

You will need all of the above before you can address the spouse’s tax situation.

To prepare yourself you might consider reading or referencing the following:

  1. CRA T4011 - Preparing Returns for Deceased Persons 2019.
    This applies to T1 2019.
    https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4011/preparing-returns-deceased-persons-2016.html

" Administrator – There may not be a will or the will may not name an executor. In this case, a court will appoint an administrator to handle the deceased’s estate. An administrator is often the spouse, common-law partner, or the next of kin."

" Executor - This is an individual or trust institution named in a will and confirmed by a court to settle the deceased’s estate."

" Spouse - This is a person to whom you are legally married."

" Testamentary debts - These are debts or liabilities of all kinds that an individual incurred and did not pay before death. They also include amounts payable by the estate because of death."

" What are your responsibilities as the legal representative?

As the legal representative, you should provide the CRA with the deceased’s date of death as soon as possible. You can advise the CRA by calling 1-800-959-8281 , by sending a letter, or a completed Request for the Canada Revenue Agency to Update Records form. This form is included with the Information Sheet RC4111 Canada Revenue Agency - What to Do Following a Death. To get a copy of this publication, go to CRA forms and publications, or call 1-800-959-8281 .

To keep the deceased’s records up to date, also send the CRA all of the following information:

  • a copy of the death certificate

  • a complete copy of the will or other legal document such as a grant of probate or letters of administration showing that you are the legal representative

  • the mailing address of the estate

  • if not already sent, a completed Request for the Canada Revenue Agency to Update Records form

The deceased individual’s social insurance number (SIN) must be provided on any request or on any documents you are sending to the CRA.

If you did not send this information upon the deceased’s death, send it with their final tax return."

  1. T4013, T3 Trust Guide
    " On the final return, report all of the deceased’s income from January 1 of the year of death, up to and including the date of death. Report income earned after the date of death on a [T3 Trust Income Tax and Information Return]."

https://www.canada.ca/en/revenue-agency/services/tax/individuals/life-events/what-when-someone-died/final-return.html

Accounting references re Final or Terminal Tax Returns

  1. Money Talks
    https://www.moneytalkgo.com/last-tax-return/

  2. Widowed.ca
    https://widowed.ca/prepare-final-tax-return/

  3. CPA Canada - Preparing for the final tax bill: Executors and beneficiaries
    https://www.cpacanada.ca/en/the-cpa-profession/financial-literacy/blog/2019/april/preparing-for-the-final-tax-bill

  4. Wolters Kluwer - Death of a Taxpayer, 12th edition $159

Topics include:
  • The tax treatment on death of income from rights and things, periodic payments, refund of premiums from RRSPs, etc.
  • The tax treatment of capital property at death
  • Rollovers to spouses, common law partners and qualifying trusts
  • Special issues regarding partnerships and farm property
  • Taxation of estates and testamentary trusts
  • Obtaining a clearance certificate
  • Distributions to beneficiaries
  • U.S. estate tax and tax issues affecting non-residents
  1. Wolters Kluwer - Estate & Tax Planning (for future client situations)
    https://shop.wolterskluwer.ca/en/publications/estate-and-tax-planning.html

  2. Knowledge Bureau - Avoiding the Tax Consequences of Transferring Assets to Children
    Although this topic is not an exact fit some of the references are illuminating and may be relevent.
    " By way of tax background, it’s important to communicate to clients that for income tax purposes, a transfer of assets is recognized, and income tax consequences result, when the beneficial ownership of an asset is transferred.

Where a transfer of legal title occurs but beneficial ownership does not change, the transfer will not be considered a disposition for income tax purposes. So what is beneficial ownership? In Tax Brief TI 2008-0281841E5, CRA notes:

“The primary attributes of beneficial ownership include possession, use and risk. Therefore, in determining whether a person has beneficial ownership in a property, one should consider such factors as the right to possession, the right to collect rents, the right to call for the mortgaging of the property, the right to transfer title by sale or by will, the obligation to repair, the obligation to pay property taxes and other relevant rights and obligations.”"
http://www.knowledgebureau.com/index.php/news/article/avoiding-the-tax-consequences-of-transferring-assets-to-children

“Eventually someone will need to be named the Executor,”

uhh- Actually No, not “Executor”…

If there is no Will, there cannot be an Executor named in the (non-existent) Will…

Check your definitions that you posted…

As I mentioned earlier, the Court will need to appoint an Administrator, who can then become the (generally) “Personal Representative”…

As posted so far, nobody has legal authority to do anything on the subject file, including taxes…

Thank you so much. The information you provided is really helpful.

Syed

Ouch. IMO this thread is a bit of a mess.

As I’ve pointed out before in this forum, it is incumbent on anyone asking a tax question (ie a non-TaxCycle-operational-related one) that proper background be provided if you expect an answer that has any form of utility or credibility.

In this thread we have a mixture of Provincial Law (doesn’t apply to the tax/PR issue), Estate Law (may or may not apply), procedural issues (intestate taxpayer/property ownership) and the Income Tax Act (Principal Residence, among other things).

A better question for the OP to have posed might be: “Before dealing with the tax effects, where do I start on this file and what do I need to get to a point where I CAN consider the PR issue?”

Again, in my opinion, most of what is here is FAR beyond the scope of a public forum in detail, complexity and resolution. One cannot even begin to answer the question posed without considerably more background.

OTOH, the simple answer is “On the terminal return it’s a disposition of a PR. Beyond that, no one can say.”

Who, as Joe pointed out, has the legal authority to file a tax return at all, is a different question. (I just had a client in this situation whose son passed, with a house in his name, partly, and intestate. Fortunately, his share passed directly as a JTWROS to someone else.)

Actually, SmallBizGuy, I disagree with your “simple answer” above on the grounds that “you can’t get there solely from the OP”. :vertical_traffic_light:

“What will be tax consequences of a deceased person … and there is no will of the deceased person”

The first consequence will be that CRA will be sending out non-filing and non-compliance notices and demands, unless or until some responsible person either does as posted above (apply to Court to be Administrator), or at least obtains, signs, and submits to CRA the RC552 form in order to deal with the CRA (only) matters. (CRA procedures changed in late 2019)

After that, that person can hire a tax accountant (on their own behalf) to prepare final return(s) (for the deceased, on the strength of their representation to CRA, if the Tax Preparer is prepared to accept that), and then it may well be (or possibly not, depending on the rest of the facts, and history of the residence/file) that your “simple answer” does in fact apply…

I have come across situations where the taxpayer is convinced it is wholly PR, but upon examination of the facts, it is no such thing, or only partially such a thing, so an “apparently likely” specific outcome is not necessarily guaranteed… :wink:

https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/rc552.html

@joe.justjoe1

Ha ha ha…don’t disagree in many ways!!

Reality is that (probably) “someone” will file, and “someone” will end up with the property. Neither may be the person entitled to do so (if anyone is, at least with the tax return). And, possibly no one will file a return at all, and the house will just…disappear to the Mortgagor, if any.