Why The Lawyer Was Wrong

A client came to my office recently and advised me that her single elderly parent had sold their home.  The little country residence purchased for under $200,000 decades ago had been sold in Ontario’s hot real estate market for nearly $1million.  A wonderful outcome for this senior as the proceeds of the sale are tax free.

Or are they?

As my client talked and I learned more about the situation, I started to cringe. By the end of the story and hearing the assurances that the lawyer gave, I was mad. The lawyer was wrong.

The lawyer assured my client, who owned both a primary residence and a rental, that by putting her name on title of the parent’s property, it would not cause any issues for my client or her siblings, who also have their own primary residences.

The lawyer was wrong. As a result of this recommendation, my client will have a tax bill in 2023. Her siblings will also have a tax bill. The elderly parent will not. 

It doesn’t matter the type of home that you own, a single detached, a semi, condo, or townhouse, they all can qualify for the principal residence exemption. If you own it, live there every year, upon being sold the profits are yours. The profits are the capital gain, which is the increased value of the home from your original purchase price. That capital gain is exempted from tax if it is your designated primary residence.

The Estate Administration Tax is applied to a deceased homeowner’s final estate return.  If you’re alive and sell your primary residence, no tax. It’s very simple.

I never encourage adult children who own their own home to be put on title of their parent’s primary residence. When it comes to the sale of your primary residence, and it’s the only property you own, the tax system is already efficient if you just keep the status quo.

If the parent(s) elect to sell their primary residence as they are moving in with family, moving to a rental property or will be going to a retirement residence or care facility, and they are worried about probate, that is when we start to adjust how to invest and account for an efficient wealth transfer.

As seniors age, many have their TFSAs maxed out and can no longer make RRSP contributions. I am the ONLY end of the financial services industry that can actually name a beneficiary on a non-registered account.  This will create an effective transfer of wealth, without a dime going to the Estate Administration Tax. 

If you would like more information on how to correctly avoid probate, please call our office at 705-733-3338 or Toll Free 866-550-6932 or email us at ttayler@taylerinsurance.com or mbishop@taylerinsurance.com.