Im the executor for my fathers estate and i have some tax questions Im hoping you all could help me with.
He purchased a cottage in 1997. In 2012 he put myself and 2 other brothers on as joint tenants with survivorship rights. Ive looked at his taxes for 2012 and theres no mention of capital gains paid at that time.
He passed away feb 2023 and cottage was transfered into the sons names
Was he supposed to pay taxes on 2012? Or is the entire gain supposed to be reflected on his final tax return due to a deemed at his death… Ive read online about a difference between legal and benifical ownership changes but im not sure exactly what that means. Im meeting with the lawyer who did the change in 2012 next week but im not sure what to ask for to determine the legal/benifical ownership question.
The cottage isnt available for the pr exemption as he had a house that will be used for.
Would be best to engage a reputable accountant after meeting with your lawyer. “Joint tenancy” has different meanings and legal implications depending on what province you’re in. And, the tax effects/consequences generally follow the legal reality of the situation.
Out of curiosity, when he put you and your brothers on title did he specify what percentage of the value he was allocating to each of you? For instance, 25% each? If so, he effectively “sold” 75% of the cottage for zero proceeds. If anything, that would constitute a capital loss - so there would be no tax owing in 2012. I don’t remember if adult children are considered “arms-length” in such a situation (I’d have to look that up, but my guess is no). A sale or transfer to a “non-arms-length” party would be considered a “superficial loss” which means it can’t be used (applied against capital gains) until the property is sold to an un-related (arms-length) party.
There are other laws and tax rules that come into play upon death, which might make this more complicated…or might make it much simpler, depending on various details that should be fully examined by accountant looking at all the documents, in discussion with your lawyer.
No there was no percentage listed in the documents. I thought you couldn’t sell property for below fmv and as such any transaction would like listed as 75% sale a fmv. But now im reading that he could have retained beneficial ownership and be responsible for 100% of the taxes.
On the surface and based on what you have written, it looks like the adding of names in 2012 was possibly done for administration purposes only and beneficial ownership remained with your father. That being said I believe you will be showing a deemed disposition at DOD and potentially pay income taxes on the taxable capital gain since no CGE on PRD will be available for this property…
Note that I said “he effectively sold…” - not ACTUALLY sold.
You can sell your own property for any price you like. But, if you sell to a non-arms-length person (i.e. family member), for something less than FMV, the original owner may be liable for some additional tax when the non-arms-length person later sells it to an un-related party (per the “attribution rules” - I think section 74 of the ITA?). And the non-arms-length buyer would have an ACB equal to their purchase price (in your case, zero, so your capital gain could be the full sale price to the unrelated party).
Again, some of these rules no longer apply upon death of the original owner. And there are a lot of other rules that may apply.