Sorry folks, my brain is currently on fried. Mrs. D and hubby had house A, bought in 2001, raised their kids there etc. Along the way, they bought house B for junior and his family. In 2014, Mr. D died and the families exchanged houses - Mom moved into junior’s house (B), which she already owned and junior and family moved in to her house (A) which she also owned. Along comes 2023 and she officially turns the title for house A over to Junior and wife. Can she claim the sale of house A as “principal residence?” She got nothing for it, but I realize it had to be at FMV. Way back in the cobwebs of my mind I think I read that this would be yes. There is no rent or anything anywhere.
Per the “ordinarily inhabited” rule, each property could qualify as her principal residence - see point 2.10 in the folio below:
As such, she could designate one or the other property as her principal residence for all years she owned it (obviously she can’t claim house B as her principal residence prior to the year she bought it). However, nobody can have more than one principal residence at a time - that is, she can’t claim that BOTH properties were her principal residence at the same time. The year she moved (2014) is not relevant, because it was her child that lived in house B, but the year she bought house B is important.
When she turned over the title to her son in 2023, there is a deemed sale, and yes - it must be reported at FMV, but some or all of the tax could be sheltered by the principal residence exemption (you fill out those details on Schedule 3 and T2091). From a tax perspective, it would be best to designate more of the principal residence exemption to the property that would incur the higher tax (i.e. the greater capital gain). That requires you to estimate what the gain might be on house B when/if it is sold in the future.
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Thank you so much. That is exactly what I thought, but the more I looked at it the more confuddled my mind became. I thought "it can’t really be this easy, can it?
Be aware of Section 69 of the ITA, in cases where property is gifted to related parties and the recipients “shortly” thereafter (as defined by the CRA in the particular instance) sell the property. If the CRA decides to make a case, they could transfer the subsequent sale back to Mum.
This is an obscure situation, but I last saw the CRA do this in 2005 or 2006. Consequently, I try to keep it in mind when properties change hands.