I have a client whose spouse passed away. They owned a house and cabin together. The surviving spouse is considering transferring house(PR) at cost instead of claiming the PRE to allow for future tax advantages on her death. How would it be recorded (2091, 1255 etc) to reflect that the house was transferred to the survivor at cost? Is it even necessary to complete the 2091 and 1255? or just record it on the S3?
Where the principal residence is transferred to the spouse or common-law partner of the person who died, or to a testamentary spousal or common-law partner trust:
- A principal residence designation for the period before death is not required in the Final Return
- The deemed disposition of the property and any capital gain or capital loss is not required in the Final Return
A record should be kept of the years for which the person who died would have been eligible to make a principal residence designation for the particular property.
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Is that a quote from CRA?
It is. Located in here.
Thank you. I also contacted CRA and asked the question. I was told that if the election to transfer directly to the surviving spouse was chosen versus the PRE, there was no need to record the transfer anywhere, just to make note of what the ACB was at transfer time for when the survivor ultimately disposes of the asset.
Does this sound correct to you?
I was thinking that it should at least be recorded on the S3 using the ACB as the proceeds of sale.
What’s the difference? Either way there is no gain to report. You could fill out S3 (as instructed in the link posted by @Arliss ) for both properties, or fill out the T2155 for ONE of the properties. But, unless you’re electing to OPT OUT of the automatic roll-over provisions, there is no tax effect. Talk to your client - tell them it makes no difference - the “future tax advantages” are the same either way, because the ACB is the same either way.
The only thing that would make a difference is if they opt out of the spousal roll-over, and report the deemed disposition at FMV. Which means the deceased may have a capital gain, but the surviving spouse’s ACB will be bumped up.
There could possibly be an implication later on.
If she elects to use the PRE for the deceased spouse’s return, it will lock her into claiming the house as her PR for the same time period. She may not want to do that later on if the cottage appreciates more from now till she disposes of the assets.
I wouldn’t say it “locks her in” to the PRE on the same house, but by the “ordinarily inhabited” rule, it may be difficult to prove that she “lived in” a different house than her spouse. So, yes - I get your point.