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Designating principal residence

A complex situation

clients had duplex (50/50 split) bought in 2003…
rented out 1 side fmv until 2013 to daughter… rental income claimed

Added this daughter/son in law to deed in 2013… deed changed but nothing claimed as cap gain
on the tax return ( would have been property increase of 26K split between two spouses)
Rental income stopped.

sold property in 2019 … daughter claims her half/ my clients claim their half

what to do ?..amend 2013 - seems a bit late…
designating property… is it from 2003 or 2013 ?

Thank you in advance for your thoughts on this.

Out of interest, what value would the daughter be using for her ACB, or has she been living there from 2013 through 2019 and expecting to use the Principal Residence Exemption to eliminate her share of the gain?

Who paid the expenses on the property from 2013 to 2019? ie, if there was a mortgage was the daughter contributing equally towards the mortgage payments? Was she paying half of the taxes, insurance, and utilities? Trying to establish if there was actually a beneficial ownership change in 2013 or just a change in legal title.

The reason the situation is complex is likely due to improper reporting when the kids were added to the title. Either a capital gain (and/or recapture) would have had to be reported in 2013 or, if the kids names were added to the legal title, but without beneficial ownership then the entire gain belongs to the parents now.

Reading between the lines, it could be the daughter & Son in Law may hope to beat the CRA with the principal residence exemption on half the gain, and the parents pay only on a smaller portion of the actual gain than if they owned it throughout.

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** Yes, the daughter and husband have been living there and they did pay half of all the shared expenses (incl mrtg & prop taxes, ins) and
they paid the utilities for their own unit. It truly would be principal residence for the daughter. There was definitely beneficial ownership.**

The client is the parents, whom – thru a diff tax preparer – did not correctly record the transfer of ownership from x2 to x4 persons.

Purpose of my question is to determine what is the “correct “ course of action …

amend 2013 ?

claim the principal residence form from the new ownership date… or is the date of ownership the original purchase ?

all help is appreciated

It seems like there should have been a disposition of 50% of the property reported in 2013. Capital gains and recapture should have been reported in that tax year.

In reporting for the daughter and son in law, they would use the date they acquired their 50% interest, which was 2013 when calculating their principal residence exemption. They would report 50% of the gross sale proceeds as their sale price.

As for the parents, I suppose you would report half the proceeds received in 2019 (since the daughter is reporting half), probably use half of their original cost as the ACB, use the actual acquisition date of 2003 on the Schedule 3 and calculate capital gains accordingly based on half the proceeds and half their original ACB.

I would then prepare Schedule 3’s for the parents for 2013 and T1ADJ’s reporting the 50% disposition in 2013. The proceeds would be half of the FMV in 2013, the ACB would be half of their original cost, and the gain would be calculated as if half the duplex was sold in 2013 for FMV.
I would give this paperwork to the client and highly recommend they mail out these adjustment requests to the CRA. I would then have them sign a form for your file indicating you have prepared those adjustments and instructed them to mail the T1ADJ’s.

2013 is outside of the Statute of Limitation period, however, if the CRA feels there was gross negligence, or a serious omission, the statute could be bumped to 6 years or even an indefinite period.

Thank you for your help on this matter… love this forum****:blush: