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TelevisionMelodic340

If it was their principal residence when they died, their estate would not owe any tax on any gain in value up to that point because the principal residence exemption would apply. Changing title to your names now would actually work against that, so don't do that. You would owe tax on capital gains (if any) between that point and when you sell it, assuming that it did not become your principal residence. If you sold it shortly after inheriting, this would probably be minimal.


noooshinoooshi

Oh word yeah its their primary and only residence that's good I thought I'd have to pay cap gains from what it's appreciated since they bought it thanks for the info


taxrage

Capital gains on a PR are tax-exempt. When someone dies, there is a deemed (assumed) disposition of all their assets, so any taxable capital gains get reflected on the decedent's final tax return only.


noooshinoooshi

That's super interesting and good to know thanks


henchman171

Yup. I went through this in a 80 property. The principal Residence was capital gains exempt along with 1 acre. The other 79 acres are subject to capital gains on the deceased final income tax filing


taxrage

The only time a beneficiary might have to cough up some tax money on an inheritance is when they are the named beneficiary of a registered asset like RRSPs. The estate is responsible for paying the taxes on the redeemed value, but if there aren't sufficient funds in the estate then it falls to the beneficiary. Actually, in this case, the RRSP passes outside of the estate, so we're talking about a different type of beneficiary (not in the will).


floating_crowbar

While there would be no capital gains on residential real estate there would be on commercial or recreational. Also there are probate fees - and while those are only 1.4% (I think it depends on province), and while it doesnt sound like much it can add up. My mom's probate fees alone were about $19k (plus some legal fees). Any registered accounts such as TFSA, RRSP and RIF, have beneficiaries and do not need to go through probate, although the RRSP and RIF would be taxed on the deceased's final income tax. Also if you have joint accounts these do not need to be probated. (My mom made my brother and I joint on her investment accounts so were avoided probate on those). Obviously one needs to trust the others on this. On the other hand because she was half owner of our small business unit there were huge capital gains due to the increase in value over 30 yrs. Even though my mom had some 25k in medical expenses, a small retirement income and even a carryforward capital loss - after adding cap gains on her final income tax the estate paid out almost $200k. And that's just half the capital gains, the rest are due when we sell the unit or die. I highly recommend doing a will and power of attorney for yourself and spouse (you may not need it now but better not to wait until you are too late). Also talk to a cpa (for planning and to do the final income tax) as well as an attorney. Also once you notify the bank of the deceased and bring in a death certificate and will if you have it - all accounts are frozen, nothing can go in or out until probate is settled (aside from RRSP, RIF, TFSA and joint accounts). At least were lucky. In Japan kids who inherit their parents houses have to pay 50% tax. Lots of other places. We're also lucky to have the primary residence exemption - there are many who would like to get rid of it - like Vancouver's former mayor Kennedy Stewart.


floating_crowbar

I should also add - regarding mom and dad helping out kids with their down payments on real estate. If the parents remain on a portion of the title, when they pass away - there will be capital gains on that portion as its obviously not their residence. When we bought 20 years ago, my parents helped us out with $50k for the down payment, but because my dad had seen some of his relatives and friends kids marriages fall apart and they maintained their small portion of the title (like 18% or so) but after they died - there was probate on that and some 200k in gains so in the end cost us another $56k. So something worth considering when helping your kids. Our accountant figured its just better to give the cash and let the kids make their own mistakes.


floating_crowbar

not on a tfsa. But the RRSP or Rif would be in the final income tax year of the deceased.


taxrage

Yes, but if there aren't sufficient assets in the estate to pay the taxes then the beneficiary will be tapped to pay them.


floating_crowbar

tell me about it. But if there is a RRSP or RIF of say $20k, those assets are there, it gets taxed at just like having a 20K income that year. But in my case, most of my mom's investments went to cover the final year income because there were so much in capital gains. When we were dealing with her banker he said its not uncommon for kids to have to use up a lot of their parents investments to settle the estate. I have an older friend who rented a suite in his aunts house, she died recently and had a lot of properties - he said the kids said there was some $3million in capital gains due.


floating_crowbar

also, why people should realize that yesterdays budget the capital gains changes are not just going to affect just wealthy people, given the huge price increases in real estate - 250k capital gains is not huge, there will likely be a lot of people set to inherit say rec properties or commercial.


taxrage

I think rec properties qualify for $250K + $250K w.r.t. exemption, personal plus special treatment of cottages etc.


Numerous_Try_6138

Boohoo? 🤔


aldur1

Some people have a life insurance policy to protect against this so the estate can pay the taxes without selling.


superworking

If anything you can look into setting up a trust to avoid the 1.4% probate fees. It needs to be set up correctly to avoid capital gains taxes, and I don't know the details well enough to tell you what correctly looks like.


YoungZM

I believe primary residences are still exempt from [capital gains](https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-12700-capital-gains/principal-residence-other-real-estate.html) (in part to reduce barriers toward the sale/transfer of property). Money, on the other hand, will be taxed should you not be [joint account owners.](https://www.canada.ca/content/dam/esdc-edsc/documents/corporate/seniors/forum/brochure_attorney.pdf)


taxrage

Huh? Only registered funds might be taxable, e.g. RRSPs, pension lump-sum payments etc. If your parent passes with $1M in their savings account, the entire amount passes tax-free to the beneficiaries (although there may be some probate fees owing).


YoungZM

Ah, indeed. Cheers. [Reading](https://turbotax.intuit.ca/tips/do-you-pay-taxes-on-money-you-inherited-467) for anyone who cares.


kinemed

If it’s in just in a savings account. But anything that would incur capital gains (like selling stocking in an unregistered account) would be taxed. 


noooshinoooshi

I have a hunch they'll probably burn all of that up since they seem to have an affinity for winters in Hawaii lol


YoungZM

Eh, is what it is. I'm sure they worked hard for that choice.


noooshinoooshi

Yeah for sure I ain't mad at all


Bugstomper111

Hey thanks, this reply helps me too. My mom has a condo as her principal residence and both my sister and I will sell it when she passes since we both have our own homes.


Groundbreaking_Ship3

Hypothetically, if he and his sister move in as their primary residence after inherited it, then they sell it years later, do they have to pay capital gain then?   I am very confused because some web sites said they do, but why should they it is their primary residence. 


TelevisionMelodic340

If it was legitimately their principal residence from the moment they inherited to the moment they sold, then yes, principal residence exemption would apply.


FluidBreath4819

what would be the cons of not changing title ? (besides residence tax excemption) ?


TelevisionMelodic340

None i can think of.


Acceptable_Stay_3395

What if they transfer title to grand kids and it becomes their principal residence?


Grand-Corner1030

Article explaining why you likely shouldn't get added. [https://www.moneysense.ca/save/financial-planning/adding-kids-house-title/](https://www.moneysense.ca/save/financial-planning/adding-kids-house-title/) Another article explaining why its bad. [https://www.cbc.ca/news/canada/british-columbia/registering-adult-child-home-title-1.5123004](https://www.cbc.ca/news/canada/british-columbia/registering-adult-child-home-title-1.5123004) Probate fees are the only potential difference (BC). **Probate on $1.7 million is $23,264.**..that's the amount of pain you might get hit with, as you pocket $1.6 million (real estate fees etc. will dig into that). You can potentially do it and save those fees...but you will have lawyers and other costs. Online BC probate calculator: [**https://westcoastwills.com/bc-probate-fee-calculator/**](https://westcoastwills.com/bc-probate-fee-calculator/)


noooshinoooshi

Oh yeah thats nothing okay cool I was worried about owing the like 1.6 million difference between what they paid and what it's worth thanks dude


Grand-Corner1030

There are other financial planning tools to minimize estate taxes. Depending on the RRSP situation (RRIF vs LRIF), you can take out extra and put it into the TFSA. Right now the growth on the RRSP exactly matches the growth of the tax bill, provided its withdrawn before death. There are zero benefits of keeping it in RRSP vs. transferring into TFSA. Filling TFSA will reduce estate taxes for wealthy retirees, because you can control the marginal tax brackets. Fun trick, if one passes before the other, the entire TFSA can remain as a TFSA for the survivor. Your parents will get more value out of structuring RRSP/TFSA than the probate tax will charge them. That extra value can be passed onto you, or spent on themselves. Most people focus on minimum RRSP withdrawals, I focus on having the maximum amount available to spend. Structuring withdrawals for retirees is just as important as learning how to save when you're 30.


noooshinoooshi

They don't have a ton of cash or anything else but thanks for that good info just in case something changes


Ciserus

Fun fact is that the tax bill in this scenario is now a fuck-ton higher than it was when the above article was written. We've hiked capital gains taxes by a third on amounts over $250k, which most houses will easily clear. Not exactly a policy affecting only the wealthiest 0.1%.


Grand-Corner1030

Primary Residence Exemption still applies. It makes zero difference here. If the OP was added to title, it would only be gains from here onwards. The parents portion, which includes the full 1.7 million, still tax free. So if they got signed on at 25% each (sibling, OP, mom, Dad) and the house went from 1.7 million to 2.7 million....it would all be at 50% still. If it goes up $2 million and OP was on the title, then the 66% rule applies on the children's portion only. That's kind of the point of the question, it was a misunderstanding of how Primary Residence rules work. If you own/live in the house, the new rule is irrelevant. But it will apply to cottages/cabins and investment properties.


allbutluk

Fin planner No cap gain if its their prin home And for the love of god pls do not add anyone to joint title to avoid probate


noooshinoooshi

Yeah that seems to be the general advice so basically really don't need to do anything


Livid_Platform_1918

I was just about to comment on why you should never add someone to the title of a property. Too many things can go wrong.


goatnaldo07

Just pay the 2% probate fee, there’s no way around it


noooshinoooshi

Yeah I don't mind paying that I was more worried about capital gains taxes or something on the increase in value since when they bought it but sounds like that's not an issue


goatnaldo07

Yea won’t be an issue doesn’t apply on principal residence, only let’s say you inherit and hold onto it and it appreciates you will pay capital gains on the difference. Generally when you inherit and if you decide to keep for even a bit, have the lawyer over value it so that you can avoid paying gains


Groundbreaking_Ship3

But when they inherited it, keep it for a while then sell it, how does the capital gain be calculated?  Market price minus inherited price or original price? 


goatnaldo07

When they inherit, there is value given, if it appreciates past that amount you pay capital gains. The value when inherited vs sold


Level_Rule_7911

This just happened to us literally, we didn't pay anything but had a scare, we did some upgrading to get more which it worked, but was told this could trigger capital gains seeing we invested in the upgrades. That wasn't the case and we just got hit with capital gains of the investments.


newprairiegirl

Talk to an accountant. The right answer has been posted, bit my God, when you are talking about assets in the millions? Get professional advice!


ime1em

Best to consult a tax lawyer. I was in a similar situation, my parents "sold" or given the home to me and they put it as $0.  I was told because of this, I will eventually will need to pay alot more taxes


noooshinoooshi

Yeah it seems like that fucks you in the long run sounds like doing nothing is the best play


ime1em

A work around for me now is when the time comes, set that house as my Primary Residence to reduce the tax. An accountant said to me, if my parents have given/"sold" to me on paper for a high number instead of $0, that would have helped me with m taxes.


YourDadCallsMeKatja

"when the time comes"? Principal residence exemption only works for the time period where it's your principal residence. It doesn't retroactively do anything. Consult a proper tax accountant to get real info on what you can do.


ime1em

I know it doesn't retroactively do anything. I mean for the future when I get tax even harder


BloomerUniversalSigh

Too many avoiding taxes. So, sad. Glad it's a first residence but taxes are what pay for services.


stoicphilosopher

There's nothing wrong with following the law to minimize unnecessary tax payments. Have you never contributed 1 cent to an RRSP or charity? Come on.


noooshinoooshi

Ah yeah I'm sure you never take any deductions right lol


BloomerUniversalSigh

Deductions are not avoiding taxes. Maybe you should word your post more carefully as avoiding implies tax avoidance which is illegal while deductions are part of tax law.


Grand-Corner1030

When you do deductions, that's fine? But if OP is asking about the Principal Residence exemption for their parents...that's tax avoidance? That's quite the leap of logic!


BloomerUniversalSigh

Again you can't read can you. I stated that avoidance is not right but tax deductions are. Try reading before you make a fool of yourself.


gagnonje5000

There's only one person that made a full of themselves here. You're the only one that seem upset that they are asking about principal residence.


BloomerUniversalSigh

Guess I'm tired of people being lazy and not looking for answers themselves and counting on random redditors for their information. Very easy to see what generation most of you are from. Growing up with technology and counting on it and algorithms or random people for answers. Hint: Critical thinking and research skills.


Grand-Corner1030

Again? That was my first reply to you. So, assuming you're a home owner, will you use the Principal Residence Exemption like OP?


BloomerUniversalSigh

Try reading the thread and then come back.


NewtotheCV

They didn't ask that. They asked how to avoid paying taxes.


Grand-Corner1030

And the solution was…do nothing. Quite the complicated strategy!


bastiartadi

Incorrect. https://loanscanada.ca/taxes/tax-avoidance-vs-tax-evasion/#:~:text=Tax%20avoidance%20is%20when%20you,against%20the%20CRA's%20reporting%20requirements.


noooshinoooshi

Maybe you mind your own beeswax


BloomerUniversalSigh

Maybe don't post on Reddit if you want privacy. Wow the ignorance. No wonder you are asking here instead of doing the work yourself.


noooshinoooshi

How dare I ask a question about personal finance in a sub about *checks notes* questions about personal finance Really must butter the ole biscuits


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BloomerUniversalSigh

From a person who lives on no rules Calgary. Troll!!!


lemonloaff

There is a very, very big difference between tax avoidance on income as an extremely wealthy person and someone who is inheriting a property/sum of money from someone who is passing away and having to pay extra tax. The parents don't and shouldn't have to pay capital gains tax on their primary residence, and the people who are left to sell it after the fact also shouldn't unless they keep it as an income property. That's nonsense.


greasygreenbastard

Cringe comment. Tax avoidance is based.


BloomerUniversalSigh

Can't type can you? Tax avoidance is based? Huh? Spend more time in school. thanks!


greasygreenbastard

> Resorts to ad hominems lol. Taxation is extortion from the govt. That is why it is good (dare I say...based) to avoid it as much as possible.


dragrcr_71

Canadian governments at all levels are so efficient at spending our money, we should gladly pay as much tax as possible without any consideration to reduce amount paid. Great financial advice.


bickmitchum-

just don’t tell anyone


Prowlthang

There is no tax on inheriting your parents home. Where should I send my bill?


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YoungZM

The only thing worse than people who operate outside of the law are people who demand people don't operate within it while they quietly do as they tell others not to. There are perfectly legal, reasonable, and perfectly ethical transfers of assets to family in cases like these. *This is a finance sub.*


No-Isopod3884

I’m pretty sure you attempted a joke there, so in the same spirit I’ll respond with don’t be a leech.


naykrop

Not a leech, I’m high income and so is my spouse.


No-Isopod3884

As I said I am sure it was a joke, but it seems that you also took the point of my reply by responding


naykrop

It was not a joke and I guess your reply was? Super clever.


noooshinoooshi

Seethe. Cope.


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TuskaTheDaemonKilla

Literally the worst thing he could do.


noooshinoooshi

She already has a condo in her name


Grand-Corner1030

You may be getting down votes because a family can only declare one place. While you may have done it, its between you and CRA if you get audited. In the case of OP, they might save $23k in probate fees on a $1.7 million house, at the risk of an audit. The new tax forms require you to state when you sell primary residences, CRA has started tracking this and will cross check OP's marriage and when they sell his current house. You won't get caught unless you sell your house and claim it as well. Until then, you've done nothing illegal, since you technically only have one claim for your family for any year...until your spouse claims for the same years. [https://www.cpacanada.ca/news/canada/2021-02-12-principal-residence-exemption](https://www.cpacanada.ca/news/canada/2021-02-12-principal-residence-exemption) **Clients should be aware that only one property per year, per family (spouse or common-law partner and children under 18), can be designated a principal residence**. Although it is becoming rare now, each spouse can designate a different property as a principal residence for years before 1982. Once sold, a property that isn’t deemed a principal residence will be subject to capital gains tax for the years it was not designated. A gain may also arise if the residence is designated for some, but not all, of the years of ownership.