So it’s the day before the T1 deadline and my client mentions in passing (after his return is completed) that he had transferred a home to his daughter during 2025. He inherited this home from a late sister who passed in 2022 and his daughter has lived there since. I explained to my client that I need to report the transfer of title to the daughter on his 2025 tax return as a deemed disposition, which would just be the difference between the 2022 value (date of sisters death) and the 2025 value (date of transfer). However, I reviewed the sister’s final T1 and there is no principal residence reported on the schedule 3 and no T1255. He has a clearance certificate for the sister’s estate.
I did not file her final T1 and I don’t have representative access to confirm whether the T1255 was in fact missed. What should I do in this situation? Would this be a situation where the new voluntary disclosure program would apply? Or should I assume what was done in the past was correct and move forward?
Deal with your client’s issue…ignore the rest. It ain’t your problem to solve (really). It’s the sister’s Estate’s issue (unless your client is Executor…).
Your client’s sister would have had to (if treated properly) show a disposition at FMV from 2022. Therefore, your client’s ACB is 2022 FMV which he should be able to estimate. In Ontario, 2022 FMV is likely higher than current FMV so there might not be a gain on gift to the daughter, but basically, you need the 2022 value and the value when he gifted it to his daughter.
As @abechew309 said, if he was the executor, he has all the information he likely needs but may have made errors on the sister’s returns. He can file late or amend it later. I guess that’s one reason for T1 checklists.
Thank you. Yes he has all the info required because the property had to go to probate court (Ontario). He used an accountant and it appears the accountant missed it. I can’t be sure but that section is not filled out on the printed final return he gave me. And yes my client was/is the executer of his sister’s estate. So does this mean I should open this up and file a T1ADJ with the T1255? What about the $100 per month penalty? Is this something that Interest/Penalty relief will assist with?
Edit - should I have my client call CRA first to confirm that the T1255 was never filed?
He has a realtor’s “opinion of market value” for both the 2022 value and the 2025 value of transfer to the daughter and you’re right, there’s a big decline in value ($132K). I am apprehensive to show a large loss on a related party transaction like this when there’s not an official appraisal done and we are not sure if the property was reported correctly in the past. I have heard of instances were CRA has denied a realtor’s opinion alone and real estate transactions are under particular scrutiny with CRA these days. Thoughts?
I haven’t experienced that (yet) and we do over 800 T1’s a year. I can normally tell if someone is playing value games. I wouldn’t be surprised if CRA looks more into value declines, though. I have never had my client get an official appraisal for a non-corporate transfer and have never had CRA question the opinion of value.
My client’s daughter has lived there since her aunt’s passing. So not my client’s principal residence but also not an income producing property either. So in this case, the proceeds should just be equal to the cost?
Sorry for all of the questions and I appreciate your help on this very busy day of the year!
I wasn’t aware that real estate could be Listed Personal Property such that you can’t claim losses. I am fairly certain that real estate capital losses can be claimed and carried forwards and back as usual. Non-Arm’s length rules might override that but then the daughter would receive the property at the father’s higher cost rather than at fair market value and eventually get to claim the loss if it weren’t her personal residence which it sounds like it is/will be.
I agree with @SmallBizGuy - it’s not your concern whether a T1255 was filed on his sister’s terminal T1. Use the property values your client gives you (as long as they seem reasonable). Advise him that CRA will likely question those values so he should be sure to have some kind of documentation to support them.
Would have been easier if he had transferred the house to his daughter in 2022, but too late now, unless he has a legal agreement for that transfer dated in 2022…
re “concern”:
Depends if the “client” is the client wearing his own hat, or
if the “client” is the one wearing the hat of the Executor. (which apparently he also is)
Yes my client is the executor and I confirmed my hunch that there is no capital loss on the deemed sale of real estate held for personal use, so I reported the transaction as nil. Client did not want to rock the boat especially since it is unclear if that the property was correctly reported in the past.
Thank you all for your input! This is a good discussion to have because property related transactions are now under particular scrutiny with CRA and I think many people (accountants included) may have missed some steps.
