I slipped it in害羞草研究所 brief tax warning at the tail end of my last column.
Unfair to those struggling to stay awake to the bitter end!
Let害羞草研究所檚 hit it head on. Buckle up.
But first, if you害羞草研究所檙e new to my column please read my last two which explain how joint ownership can sidestep probate.
Canada is a fantasy land. A little fairy pops out the moment before we die and waves their magic wand.
Poof!
Everything we own has been sold and repurchased.
I害羞草研究所檓 not making this up.
Who did we sell everything to? The fair value monster.
The monster pays us fair market value for everything we own.
The home Greg paid $440,000.00 for 10 years ago?
The moment before Greg passes away, the fair value monster purchases it for $900,000.00, the exact amount it would sell for if listed for sale.
Brilliant! No real estate commissions!
But Greg doesn害羞草研究所檛 get to keep the cash. The party 害羞草研究所減oofer害羞草研究所� is that Greg immediately buys it back for the exact same amount of money.
What does that have to do with tax?
That fanciful little transaction triggered a capital gain.
A capital gain is when you earn money by selling something at a higher price than you bought it for.
The capital gain Greg earned on the fanciful sale of his home was $460,000.00 ($900,000.00 market value minus the $440,000.00 he paid for it 10 years ago).
Thank goodness for the homeowner害羞草研究所檚 exemption or Greg would have to pay a boatload of tax on that massive capital gain.
Well, not Greg. He害羞草研究所檚 dead. That tax would be paid out of his estate.
But what if, when Greg purchased his home 10 years ago, he had cleverly transferred title so that it would be held in joint tenancy with his daughters, Maria and Grace, so they would avoid probate fees?
Over those 10 years, Greg owned only 1/3 of his home. As such, the little fairy trick triggers the homeowner exempt capital gain on only the 1/3 owned by Greg.
The joint tenancy trick works. Maria and Grace get the home fully in their names without having to pay probate fees.
But the massive capital gain on the 2/3 of the home Maria and Grace have owned for those 10 years has not yet been triggered.
That massive capital gain will be triggered whenever Maria and Grace sell the home, and they will have to pay an amount of tax that makes probate fees look like chicken feed.
Does this sound complicated? It gets much, much worse.
Let害羞草研究所檚 change things around. Instead of an owner-occupied home, it害羞草研究所檚 Greg害羞草研究所檚 Big White condo. No homeowner exemption.
And Greg puts the condo in joint names with only Maria because he has other assets of similar value that he害羞草研究所檚 going to give to Grace in his will.
Maria is happy with getting a $900,000.00 condo because she and her family love to ski.
Grace is happy as well, because she doesn害羞草研究所檛 like to ski and is getting $900,000.00 of other assets
Hopefully they害羞草研究所檙e both sad about losing their dad, though!
The moment before Greg dies, the fairy trick triggers a capital gain on Greg害羞草研究所檚 50% ownership of the condo. That害羞草研究所檚 a capital gain of $230,000.00 (50% of the $460,000.00 calculated above).
Whose capital gain is that? It害羞草研究所檚 Greg害羞草研究所檚. And it害羞草研究所檚 paid out of his estate. That means it害羞草研究所檚 paid out of the $900,000.00 that was supposed to go to Grace.
Not quite what Greg intended!
I害羞草研究所檝e scratched only the surface of consequences of Canada害羞草研究所檚 little fairy, and only as related to real estate. The fairy害羞草研究所檚 wand applies to all assets: RRSPs, investment accounts, you name it.
And the fairy doesn害羞草研究所檛 care about unfairness. There is a risk, with shares in closely held companies, of the fairy trick resulting in tax being paid twice on the same gain!
My head spins when delving into the nuances. And the clever strategies that estate tax accountants come up with to circumvent the fairy.
If you害羞草研究所檙e feeling the pressing need to consult with an estate tax accountant, I害羞草研究所檝e achieved my goal.
Unless you害羞草研究所檙e way smarter than me and have the time to learn and stay up-to-date about the ever-changing tax laws, it害羞草研究所檚 dangerous not to get estate tax advice to avoid unfairness and ensure your estate passes the way you intend.
Paul Hergott
Lawyer Paul Hergott began writing as a columnist in January 2007. Achieving Justice, based on Paul害羞草研究所檚 personal injury practice at the time, focused on injury claims and road safety. It was published weekly for 13 陆 years until July 2020, when his busy legal practice no longer left time for writing.
Paul was able to pick up writing again in January 2024, After transitioning his practice to estate administration and management.
Paul害羞草研究所檚 intention is to write primarily about end of life and estate related matters, but he is very easily distracted by other topics.
You are encouraged to contact Paul directly at paul@hlaw.ca with legal questions and issues you would like him to write about.
