Hello, it would be great if anyone can confirm my understanding about the following scenario:
A dies on June 1, 2025 (Cost=$500,000, FMV=$1M). Under the will, the rental property is to be transferred to A’s spouse. The estate settlement is completed on June 1, 2026 (FMV=$1.5M).
On June 1, 2025: The 70(6) rollover applies automatically, so no tax consequence for A at death.
From June 1, 2025 to June 1, 2026: An estate return (T3) is required to report the rental income.
On June 1, 2026: A’s spouse receives the property at A’s original cost of $500,000 per 70(6).
I think it depends on all the other facts. Were there any other assets in the estate? Was everything left to the spouse? If the rollover occurred on June 1, 2025 to the spouse, why are you claiming the income earned after the rollover in an estate?
Does the rollover take place at death, rather than at the time of distribution?
Let’s say the bank account balance was distributed from the estate to the adult child on July 1, 2026, with no other assets remaining. My understanding is that if there is no joint tenancy or right of survivorship, the assets first become part of the estate and is then distributed. So if any income is earned before the distribution, the estate must report it. That was my understanding
However, if the title is actually transferred TO the estate before being transferred TO the spouse (i.e. there is a land title document issued in the name of the estate), that means there must have been some INTENTION for the estate to HOLD the property for some time. But, normally, title would transfer from the deceased to the spouse, even if it takes some time to get that done (probate, etc). So, then the intention and expectation was for the spouse to own the house and report the rental income.
CRA isn’t going to be too concerned whether the rental income is reported on a T3 or the spouse’s T1. They will be more concerned that the rental income is reported by SOMEONE.
And, even if the estate held title to the property, the rental income could be allocated to the beneficiary on a T3 slip, which would have the same effect as the beneficiary reporting the rental income directly.
“CRA isn’t going to be too concerned whether the rental income is reported on a T3 or the spouse’s T1.”
Except that Section 104(1) and 104(2) would seem to require such trust property income to be reported on the T3 from Date of Death June 1, 2025, to legal distribution date on June 1, 2026.