Celebrities (Male)   Male film actors   John Archer  

Keeping it in the family

Keeping it in the family
John Hitch  |  by www.canada.com. All rights reserved. 17.07 | 13:13

Keeping it in the family

ESTATE PLANNING. Tax liabilities could result in your heirs having to sell the family cottage, but there are ways to offset this situation

JOHN ARCHER, At this time of year, as docks are reinstalled into the lake and storm windows are removed, it seems an appropriate time to examine the potential tax liabilities of an estate's most loved asset, the family cottage.
Many people forget or, perhaps, choose to ignore that upon their death or upon the death of the surviving spouse (if the assets have been willed accordingly), their secondary residence becomes a taxable capital gain.


If you have owned this property for several decades, this capital gain (the difference between the current value of the property less your original purchase price and subsequent renovation costs) can be significant.

Font: In fact, without proper estate planning, this potential tax liability could mean the property is lost to your next generation. However, there are a few simple solutions that might assist you in offsetting this eventuality.


For those with two residences, say one in the city and one in the country, they should consider designating the property with the highest potential gain over the purchase price as their "principle residence." As you may know, proceeds on the sale of one's principle residence are not taxable.
The Canada Revenue Agency (CRA) allows you to designate one property per household as a principle residence and that can be the residence of your choosing providing you have lived there for at least a single day within the calendar year.

This can be of particular interest both now, if you are considering a sale of one of these properties in the near term, or are pondering potential tax liabilities to your estate later.
First, if the property you own in the city is of lesser value than your secondary residence or the potential capital gains are larger, you should consider designating the secondary residence as your "principle residence" for tax purposes if you are considering a sale of both properties at the same time. If you are holding on to both properties, this designation can be made later if it is deemed to be beneficial tax-wise.


Keep in mind that at death, you are deemed to have sold, or disposed of, both properties at their fair market value. So upon your death, your liquidators may choose to designate the property with the highest capital gains as your principle residence.
The designation of a property as a principal residence is made on Form T2091, which can be downloaded from the CRA website.

This is completed and filed with the tax return for the year in which the property was disposed of, which could be now, if you are selling, or later during the settlement of your estate.
Choosing which property to designate as your principle residence will take some basic calculations. Also, speak to your accountant about which would be the better principle residence because there may be some exemptions the accountant has filed for you in past years that you are unaware of or do not remember, depending on how long you have owned the property.


However, if you are a renter in the city and the only property that you own is the secondary home, then the decision will be clear. If you were to sell the secondary home, then complete Form T2091 to designate the property as your principal residence.

Read more on by www.canada.com. All rights reserved.
Keywords: Form T2091
Related news
Post comments
Name
Place
4 + 3 =
Comments