Capital Gain taxes on a parent's estate

[carverman]

This question arises from my thread "right of survivorship" posted in the REALESTATE part of this forum.

1. My mother (87)and I (66) are joint owners of my principle residence.

2. My mother also has a principle residence in Toronto.

Ok, Here is my question. (when her estate is eventually handled)

How will capital gains be determined on MY property (that she is joint owner of) when her estate is exercised?

1996: Paid $122K for my home.
2012: Currently assessed at 198K

(however with the new property assessment this year , it will rise to from 215K to $266K for property tax purposes by 2016 in 4 increments (phase in) of $17,000 per year.)

My mother (87) collects CPP/OAS and a small private hospital (where she worked in Ottawa) pension. She would be in the lowest tax rate, just like me.

This is what I am trying to figure out, so I can advise my mother.

If we don't do the legal process to transfer her interest in my property over to me, her estate would have to pay taxes on:

50% (her share) of $93K (difference between when my property was bought in 1996 and the current 2012 assessment) = 46.5K?

Will her estate have to pay capital gains on all that amount at her income tax rate?

(Assuming she has a gross income of $25K in 2012.)

[MoneyGal]

1. You should be using the fair market value, not the assessed value for property taxes.

2. You should also know that all of her assets will be deemed to be sold on the day immediately preceding her date of death, which may result in other gains.

[Spudd]

But does it matter that she never contributed financially to the house? I half-heartedly tried to google this earlier and failed, but it seems to me that this is the important point here. If they bought it 50/50 then I would fully agree she's liable for half the capital gain. But since she's only on the title in name, never put any money into it... is it really a capital gain in this case?

[carverman]

1. You should be using the fair market value, not the assessed value for property taxes.

2. You should also know that all of her assets will be deemed to be sold on the day immediately preceding her date of death, which may result in other gains.

I see. So it appears that no matter what she does, (or doesn't do) the CG tax hit might still be the same?

Lets say she agrees to dispose of her half and give it to me for a 1 dollar. Does she still have to pay CG on the difference between the purchase and fair market value anyway?

If so, what is the difference then between transferring it now.....and leaving it to be dealt with in her estate? Either way it appears she would have to pay CG.

[carverman]

If they bought it 50/50 then I would fully agree she's liable for half the capital gain. But since she's only on the title in name, never put any money into it... is it really a capital gain in this case?

I bought the house. She had her name put on the title to protect me from my ex. We were not divorced at the time and didn't have legal separation either. Although we were separated for all intensive purposes. living in different
locations, I was concerned with the slow progress of divorce litigation (from Sept 1, 1994 until April 9th, 1998) that she could come after me to include the value of my property purchase in the marital assets to be split
50-50. I was renting a apt in 1995 for a year, but decided that buying my own house was better for me after my lease expired.

During the pre-trial and divorce trial, the judge (at my ex's lawyers request) gave me undertakings which required me to provide ALL legally owned assets including any new property acquired since date of separation.
I think the reason, she didn't come after me on my current house was because my mother's name was on the title, and it would have ended up a 3 way lawsuit, which neither one of us were prepared to
deal with the costs.

However, I am the one that paid the mortgage off, as well as paying property taxes, and repairs/renovations since I purchased the property.

[MoneyGal]

I see. So it appears that no matter what she does, (or doesn't do) the CG tax hit might still be the same?

Lets say she agrees to dispose of her half and give it to me for a 1 dollar. Does she still have to pay CG on the difference between the purchase and fair market value anyway?

If so, what is the difference then between transferring it now.....and leaving it to be dealt with in her estate? Either way it appears she would have to pay CG.

Dispositions between non-arm's-length parties are always at fair market value OR above fair market value IF the selling price is ABOVE fair market value. Dispositions at below market value ("what if she sells it to me for a dollar") are always treated for tax purposes as though they are AT fair market value. So even if she sells you her half for $1, she will be taxed as though she sold it at fair market value.

From IT4037, which is the Capital Gains guide: http://www.cra-arc.gc.ca/E/pub/tg/t4...tml#P279_29831

When do you have a capital gain or loss?

Usually, you have a capital gain or loss when you sell or are considered to have sold capital property. The following are examples of cases where you are considered to have sold capital property:

•You exchange one property for another.
•You give property (other than cash) as a gift.
•Shares or other securities in your name are converted.
•You settle or cancel a debt owed to you.
•You transfer certain property to a trust.
•Your property is expropriated.
•Your property is stolen.
•Your property is destroyed.
•An option that you hold to buy or sell property expires.
•A corporation redeems or cancels shares or other securities that you hold (you will usually be considered to have received a dividend, the amount of which will be shown on a T5 slip).
•You change all or part of the property's use (see Changes in use).
•You leave Canada (see Guide T4056, Emigrants and Income Tax).
•The owner dies (see Guide T4011, Preparing Returns for Deceased Persons).

/quote

Whether your mother contributed or did not contribute to the costs of ownership does not change or somehow reduce her ownership share.

Note: I am speaking in generalities, and you should get professional tax and/or legal advice.

[marina628]

Could this be considered the same as if she cosigned a mortgage but had no financial interest in the property?Generally a bank requires cosigner on title too and when these sort of properties are sold there is no tax paid by cosigner as the other party is using it as their principle residence.

[carverman]

Could this be considered the same as if she cosigned a mortgage but had no financial interest in the property?Generally a bank requires cosigner on title too and when these sort of properties are sold there is no tax paid by cosigner as the other party is using it as their principle residence.

She had to co-sign the mortgage because CIBC that issued the mortgage insisted on her signing the mortgage. However, I am the one that paid it off, since I was living there. I even cashed in an RRSP to pay it off in 2006, when I was retired.
I really don't know now, which way is best. I suppose I could consult a lawyer and see if she signs it over as a gift to me...otherwise, I am going to be in for some legal costs, and she may still have to pay CG on her share
even if she relinquishes her interest in my property to me as a gift.

If that is the case, then there is no advantage of transferring the title to my name right now. I might as well let "sleeping dogs lie", and let her estate handle any CG issues when the time comes.
I'm certainly not in any position now to pay the CG hit for her, and it's not fair to ask her to give me the full title, and then she still has pay CG on her half for that privilege.

[domelight]

Your making this way to complicated.

1. Capital gains tax post Dec 31st 1971 are based on Capital contributed. Meaning if you paid for the house Then any resulting capital gain is applicable 100% to you. However if I read this correctly it is also your principal reesidence so if these two facts are corect then nobody owe's any capital gains. There is nothing to report on the tax return.

2. The fact your mother's name is on the deed is irrelevant for income tax. However I cannot say for sure you won't have problems with probate tax at estate time. This however could be easily avoidable by either a) remove mom's name from the deed b) registeer the deed "Joint ownership with right of Survivorship" (this will deem the property entirely your's at death and thereby avoiding probate"

Many rule's are different for many purposes ie: WSIB has different rules than payroll for the same circumstances, income tax has different rules than probate tax. The fact that you structured your deed in the manner you did for legal reasons does not neccessarily reflect as to the tax treatment.

[sprocket1200]

go talk to a financial planner about trusts...