QUESTION:
Is there a inheritance tax on Canadian estates. the estate has a family cabin on a lake it is worth 500,000.00. It is the parent permit home they collect a home owners grant on the property.
-------------------------------------------- DAVID INGRAM REPLIES:
Canada does not have an inheritance tax.
Canada DOES have a capital gains tax on any increase in the value of assets from the purchase cost to its deemed value on the date of death.
The exception is the Family home which can be a boat you live on with a piece of land for moorage, a trailer or mobile home on a lot, a cabin, a ski chalet or a house in the centre of town BUT only ONE of those. So, if mom or dad only has a cabin and lives in a rental property, the cabin can be the tax free residence. OR if you have a house in town but the waterfront cabin went up more in value, you can claim the cabin tax free and pay the capital gains tax on the house in town.
If the person had both and sold the house in town four or ten years ago and moved into the cabin, and they had claimed the house in town as their tax free residence in the past, they would owe capital gains tax on the cabin for the time period that they had claimed the house in town tax free.
You would use from T2091 to calcualte the taxable amount.
The following question speaks to it and gives links to the forms. Note that it suggests no gains in Manitoba. Not today, Sept 11, 2007. I just came back from a funeral in Portage la Prairie and everything in Manitoba seems to have doubled in the last few years.
My question is: Canadian-specific
QUESTION: We purchased beach front property in Manitoba, Canada 9 years ago. The cost was $18,000. We have received an offer to purchase the land for $500,000 U.S. We would like to know what kind of tax breaks we can use to not have to give half of it away to the Canadian government.
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david ingram replies: The good news is that Canada only taxes 50% of the profit at your marginal tax bracket. That means that the most you will pay is about 25% of the profit. You should be feeling better already. I cannot tell if this property had a home on it. If it did, the whole thing can be tax free because you can designate either your house in town OR your recreational cabin as your tax free prinicpal residence. This would be true if you only had a trailer on it. The downside is that you would have to pay Capital gains tax on any increased value of your town home. However, there is no possible way that a Winnipeg, Brandon, Portage La Prairie, Selkirk or Minnedosa house went up at a comparable rate. If you did build a house and the value is on your principal residence, you would file form T2091 http://www.cra-arc.gc.ca/E/pbg/tf/t2091_ind/t2091_ind-03e.pdf The worksheet is at: http://www.cra-arc.gc.ca/E/pbg/tf/t2091_ind_-ws/t2091_ind_ws-03e.pdf
But, if you just left this land vacant for the 9 years, it is taxable.
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