Thanks iln advance for your reply.

My Aunt died in Manitoba.

Sorry to hear that. My Dad passed away in March. It’s been more than 5 months, but I still think about him all the time.

Your situation is not as bad as you think. The concept is that your Dad’s estate must pay capital gains tax based on the market value at the time of death compared to the cost of his portion.

The first question is: Did you each owned half, or did he own it all and you just put it into joint name to avoid probate fees? Most likely, you did not pay tax on half when you switched it to joint names, so then the property would be his.

Then you need to establish a reasonable market value and cost.

The market value would be based on what it would sell for now. The property tax assessment would work against you, but it is only one indication of market value. I would suggest having a real estate agent give you a written market value. Better would be 2 or 3 agents, since the property tax valuing does not support your figure.

Are you planning to keep the property? If you sell it, then obviously what you sell it for is the fair market value.

Then you need to establish the cost. This would be what he originally paid for it (including legal and other fees), plus the cost of any major improvements (not repairs and maintenance).

The issue here is that many people keep no records when they own a property for decades. Do you still have records of what he paid for it? What about records of the cost of significant improvements?

If you have no records, then all you can do is go with the most reasonable estimate you can come up with. Any records are helpful.

The taxable amount is only half of the total capital gain. The taxable half of the gain would be added to your Dad’s final tax return

To take a worst-case scenario, if it is worth $150,000 and he paid $20,000 100 years ago, then you have a $130,000 capital gain, or a $65,000 taxable capital gain. Even if his estate is in the highest tax bracket, you won’t pay more than about $30,000 on it.

Ed

Sorry to hear about you father. My father also passed away in March.

There are no actual estate taxes in Canada – just income tax on your father’s final return. If the savings are non-RRSP, then there is no tax. If they are RRSP or RRIF, then they will be fully taxed on his 2009 return. Assuming the condo was his principal residence, there is no tax here either.

Probate fees are between .5-1.5% and only apply to those assets transfered by the will. Even on a $900,000 estate, probate fees will probably be just over $10,000. Anything held in joint name with you would not be subject to probate fees.

Does that answer your question, Phil?

Ed

Thank You for your assistance…

[...] FrugalTrader05:00 amAdd comment In an article about the lack of estate taxes in Canada that I wrote a couple weeks ago, The Financial Blogger mentioned that there are probate fees [...]

Probate fees here in Ontario range from .5% to 1.5% – which is eliminated by the higher MER’s and costs if you are in a UL for 1-2 years. If you are on your death benefit, you could save with a UL (but not qualify for one).

Crystallizing the cottage now and putting it into a trust has 2 disadvantages:

1. You pay tax now on the gain so far (as opposed to deferring it until you and your spouse have passed).
2. Trusts have a term of 21 years, so you would have to pay tax every 21 years on the cottage in a trust. Unless you are old, you will probably live longer than this, so the trust won’t defer your tax.

Trusts while you are alive (inter-vivos trusts) are usually used to maintain control, not save tax.

Ed

Another way of avoiding a part of capital gain taxes on your cottage is to set up a trust and crystallize its value while you are still alive. As long as the cottage is not sold by your children, no capital gain will be charged. I guess that Ed could go a little bit further on this topic.
Cheers,
FB.

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