When doing a final return for a deceased taxpayer who’s name is on title to a secondary property jointly with another surviving family member, does this property need to be declared on the final return?
In this care, my client’s father passed away. He has a surviving spouse still living in the primary residence. He is also on title to a secondary property jointly with my client (his daughter) that was inherited from his later sister. That property is being used as a residence by a third family member and never rented. Are there any tax implications on the final return for the father? Technically all his assets would transfer tax deferred to his wife but this secondary property will legally go to his daughter.
In this care, my client’s father passed away. He has a surviving spouse still living in the primary residence. He is also on title to a secondary property jointly with my client (his daughter) that was inherited from his later sister. That property is being used as a residence by a third family member and never rented. Are there any tax implications on the final return for the father? Technically all his assets would transfer tax deferred to his wife but this secondary property will legally go to his daughter.”
Who exactly is your client?
If you are suggesting dong a deceased’s T1, then it would have to be the legal Executor (or appointed legal Administrator) of the Estate.
That being the case, the Executor of the estate has the legal duty to sort out the proper ownership (and any related legal agreements), with the assistance of the Estate’s lawyer and the estate’s CPA.
So the first thing to figure out is who exactly has responsibility for what.(legally) - and get them to do it first.
Tax treatment can only then be figured out.
The daughter of the deceased is my client and the executor. And yes I am referring to the deceased final T1. I am now the estate’s CPA and there is no lawyer. Does this help?
My thoughts are that it depends on the beneficial ownership of this secondary property. If Dad was the beneficial owner then regardless of legal title there would still be a 100% deemed disposition on his final return. If daughter is the beneficial owner, then no DD. The tricky part is figuring out beneficial ownership without a lawyer involved.
Isn’t this a perfect example of why the T3 requirement was considered? Now, you kind of have to rely on your own judgement, I seen it, client will bring up lots of points to substantiate that would be a beneficial ownership situation
secondary property jointly with my client (his daughter) that was inherited from his later sister.
I expect you need to determine “who exactly” inherited the secondary property from the deceased sister. Did the father and his daughter (your client) jointly inherit the property from his sister (her aunt), did the niece (your client) inherit the property solely from her aunt, or did the father inherit the secondary property solely and add his daughter’s name to the title for convenience.
If the deceased father inherited the property from his sister then you need to obtain the value of the secondary property on the sister’s date of death and report the disposition.
I can’t imagine a situation where the property does not get reported as a disposition unless the property was left solely to your client by her aunt or if your client purchased the property from her father and left his name on title.
Even if the property was left jointly to the father and his daughter by the father’s sister there would still be a deemed disposition of his share of the property.
If the deceased father was the beneficial owner of the property, or beneficial joint owner of a share of the property, I suppose he could use subsection 70(6) to transfer his ownership share of the property to his surviving spouse. The surviving spouse’s name would need to be legally registered on title within 36 months of his death. All you would be doing is deferring the ultimate reporting of the disposition until mom dies.
“The tricky part is figuring out beneficial ownership without a lawyer involved.”
Currently the daughter/Executor is on the hook for potential legal liability of $millions (depending on the properties combined valuations) if something is wrong/contested, and she wants to risk that personal legal liability without an estates lawyer? Good luck to her.
And would I then insert myself as is (as tax preparer) to potentially be part of that potential large liability, at least in so far as the tax component? - Guesses and possibilities wouldn’t cut it for me personally - there seem to be a lot of “If this” or “if that” here.
I would think the deceased sister’s “will” would be a good start in establishing who is the beneficial owner of the property. A lawyer likely won’t be able to tell you that without knowing the circumstances under which title passed to the father and his daughter. The lawyer who handled the title transfer from the deceased sister would be best familiar with the matter.
Asking the client may also give you the relevant information.
Quesiton: Under what circumstances did this property come to be jointly owned between yourself and your father?
Answer: It was left to my dad by his sister, but he thought it was a good idea to put my name on the property at the time of transfer.
Technically speaking, there would be nothing wrong with the father gifting his daughter a share of the property at the time of transfer, as the property would have been transferred to the father and his daughter at fair market value at the time of his sister’s passing. There would have been no accrued gain at that time.
This sounds like a good process. Thanks @snoplowguy. A good place to start is the aunt’s will and final return. Hopefully the client still has it. Luckily it was only 3-4 years ago and at a time when Toronto area real estate was at its peak so if it was reported properly on the aunt’s final return, then probably not looking at huge gain on the father’s final return anyway.
Of course there is tax implications. Dad didn’t live in it, another family member, not on title, did. Rent never collected. No beneficial use here.
The Deemed Disposition is reportable 50/50 on the estate and your client. Being on title she gets to report the Deemed Disposition too. Kids should never be put on title as the Fed’s changed the rules long ago. The only good thing for your client is that when she sells, her ACB has now increased to the current FMV.
I have a similar complicated one I am trying to work through - client passed in June 2025. He was separated from his wife. I am aware there will be deemed disposition on the date of death, and any resulting gain from the sale post date of death will be reported in the estate return or the wife. She is the executor and sole beneficiary
Here is where it gets interesting, and apparently, some lawyer advised this setup many years ago
Property #1 Deseased lived here, but was owned by wife and her new partner
Property # 2 is owned by the deceased, and the wife and partner live here
Property #3 Co-owned by wife and deceased, and adult son lives there, but deceased did go there on occasion because it was their house in the ‘city’
Property #4 Wife disposed of in 2023 - only she and her sister owned, and she declared it as her principal residence.
I have requested that she meet with a lawyer to review and transfer titles and to provide a summary of properties, dates of purchase and sale, values, etc.
So property # 2 would have capital gain for deemed disposition for the taxpayer
Working on property #3 - and if the deceased did live there and then for years after, occasionally if ha can claim this as principal residency on his 50%
further complicated by the fact wife is no client as well
“further complicated by the fact wife is no client as well”
This doesn’t seem to make sense.(?)
Since you said about the ex-wife: “She is the executor and sole beneficiary”,
it follows that your client is the (ex) wife.
It also follows that it therefore is her responsibility to provide an accounting for the estate.
So yes, if she lacks the training and expertise to do it herself, I would agree that she needs to follow your advice and seek professional legal and other assistance, as and when required by the case facts. (She may in addition have some responsibilities to at least partially account to the deceased’s son that you mentioned, so the lawyer in her province can also advise her on that)
She still seems to have a long way to go (Probate etc) before she can transfer titles etc. Has she really not done anything at all in the past 9 months?
Presumably you meant that the (ex) wife is hiring you only to do estate tax work in her capacity as personal representative for the estate, and not for her own personal taxes.