I have T1 client that purchased her home in 2010 $175,000, her primary residence. She married Dec 2012 and moved into her spouse’s home. From 2013-2020 her adult son continued to live in the home while she paid all expenses and he paid no rent, so not really a change in use. FMV at Dec 2012 $190,000 then she had $20,000 capital expenses in 2017 and 2020. Home sold Dec 2020 $255,000. It can only be reported as her primary residence for 3 + 1 year. But I would like some perspectives on what to use on the T2091 line 10 for ACB.
Thanks in advance for your input.
Hi Rosanna:
As either the client’s son or your client resided in the home throughout the period of ownership, the property can be sheltered using the Principle Residence Exemption, throughout the period of ownership. To be eligible, the son can’t declare another home for the same period as a principle residence, (2013 to 2020). Therefore, ACB is 175K. PR exemption applies from 2010 through to the year of sale, (first 2010 to 2012 by the client then 2013 to 2020 by the son). The taxpayer’s current residence, owned from 2013 is also sheltered as it would be her sole PR claim for the period, when sold or change of use occurs.
Reference the Income Tax Folio S1-F3-C2, Principal Residence: https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-1-individuals/folio-3-family-unit-issues/income-tax-folio-s1-f3-c2-principal-residence.html
See the ordinarily inhabited rules starting at 2.10, and review section 2.13 which excludes adult children from being part of the taxpayer’s “family unit” for purposes of the PR rules.
Greg.
Gregory Marko PEng, MBA, CPA CMA
P:416.527.4431 | F:416.850.4600
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Perhaps the spouse would like the marital home to be their principal residence for 2013 to 2020. If the client declares her original residence, now lived in by the son, as the principal residence then the marital home can’t be declared a principal residence for 2013 to 2020. The client should discuss this with her spouse and they should determine which property increased in value the most during 2013 to 2020 (that’s the one to declare as the principal residence).
It is not the son’s house.
An individual cannot claim a Principal Residence’ for somebody else’s property.
Lots of legal problems would likely ensue.
As Teresa says, you should first discuss with the client, and determine which property to declare as the principal residence for 2013-2020.
Second, if your client decides that the marital home was her principal residence, then you have a choice whether to use the PRE formula to calculate the gain (3+1 years of the 10 years owned) OR to declare the change in use as of 2012. If you use the latter method, then the sale in 2020 would not be considered a sale of a principal residence, and would not require a T2091. You would still need to report the ACB on S3, and as such I would suggest your client obtain a valuation of the property as it was in 2012, then add the $20,000 in capital additions.
Third, you could try to late-file a 45(2) election, to extend the change-in-use for 4 years; then get a valuation of the property as it was in 2016, then add the capital additions. But, of course, this means waiting for the Minister of Revenue to respond to your 45(2) election…
The amount of tax savings depends on how much the value of the property increased between 2010 and 2012 or 2016. Your client will also have to consider the cost of getting an appraisal or other valuation based on historical data.
The client and her spouse want the PRE for the home they share from 2013 forward. Larger increase in value. I am in agreement that the son should not be claiming the PRE for 2013-2020 as he does not own the home. I do not think he could claim beneficial ownership as he did not pay any of the expenses for the home. I was going to use the 3+1 on the T2019. Which goes back to my initial question of which amount to use for ACB? If the line asked for purchase cost it would be clear to me. But it asks for ACB which makes me second guess the amount to use. Just wondering if there is something I am not aware of or have not thought of. Thanks
I see it as:
Year of acquisition: 2010
(“purchased her home in 2010 $175,000”)
Purchase cost: $175,000
Add: Capital additions: $0
ACB: $175,000
ITA Section 53 (about 22 pages of it) talks about:
“In computing the adjusted cost base to a taxpayer of property at any time, there shall be added to the cost to the taxpayer of the property such of the following amounts in respect of the property as are applicable…”
I don’t think Gregory was suggesting the son would be able to claim the PRE; obviously he can not as he is not the owner. The legislation allows for the owner to claim the PRE if they live in the home, their spouse lives in the home, OR if their child lives in the home. Since the child lives there, the client would have the option of claiming the PRE on this house if they did not wish to preserve the PRE for a different property. In your case, I understand they wish to save the PRE for use on a different property.
You also mentioned in your original post they had $20,000 in Capital Expenses in addition to the 175,000 she paid for the home in 2010. I don’t know why they would not be considered allowable ACB additions, as the CRA generally allows additions and improvements to the property (but not current expenses) to add to the cost base of the property.
If the 20k in capital expenses are legitimate, I would be inclined to use 195,000 as the ACB on the T2091, being the 175,000 original cost plus 20,000 in capital additions.
The FMV from December 2012 does not factor into the calculation as there was no change of use. It’s use did not change from personal to business or rental.
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“You also mentioned in your original post they had $20,000 in Capital Expense”
APOLOGIES! I totally missed that line in the original post at the time of posting my previous post.
So i agree, 195 appears to be the acb.
I would inquire further, though, about tht $20k, to make sure that it is capital additions.
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Thanks everyone. Great feedback.
I appreciate everyone’s input and time.