People in Canada give away their homes and other possessions to family, close friends, and other loved ones for various reasons. While most folks are glad to receive a new home, it comes as a bittersweet moment as it generally follows the death of a benefactor.
Several residents do not know much about the Canadian inheritance tax on property, and therefore, have no clue what to do if they inherit a home. Without proper guidance, they may end up paying massive amounts of money needlessly.
For this reason, the inheritance may seem more like a burden than a gift. Here are some fundamental things you should know about inheritance laws and taxes in Canada. This information will be extremely helpful if you inherit property in the future.
Inheritance Tax on Property
Canadian inheritances are at an all-time high with reports suggesting an estimated $1 trillion reach over the next ten years. Many Canadians are opting for live inheritances as well, choosing to leave money, property, and other valuable assets to family members while they are still alive.
The mind-boggling estimate from the report is a potent reason for residents to know a fair bit about Canadian inheritance tax on property. This knowledge will be useful when they deal with inherited property or decide to leave some of their own.
As per Canadian law, there is no inheritance tax on property. If your inherited home or other property is the deceased’s primary residence, then you will not have to pay any taxes to inherit the place.
However, taxes in the form of capital gains must be paid in some instances, if applicable. For example, suppose your parents or grandparents left you a secondary home (such as a vacation home) as part of their estate. In that case, the capital gains tax is the estate’s or your responsibility before you can take over the inheritance.
When it comes to inheritance in Canada, regular exemptions such as the Lifetime Capital Gains Exemption and the Principal Residence Exemption are applied.
The Capital Gains Exemption on your Canadian secondary property allows deduction from the disposition of small business corporation shares, fishing, or farm property.
With the Principal Residence Exemption, you need not pay any capital gains on the disposition or sale of your primary property. In order to qualify for this Canadian tax exemption, the primary property should have been your principal or chief residence for every year that you owned it.
What Can You Do with the Inherited Property?
Many Canadian residents keep the property but need a bit of extra income for the upkeep. Therefore, they lease it to renters and make reasonable profits. But they spend on advertising, maintenance, repairs, and other expenses regularly.
If you already have a home and a second one seems like a burden, consider selling the inherited property. Find an excellent local Canadian realtor who can help you out of the situation by outrightly buying the property. There are several realtors in Canada to choose from. So, do some research and find a trustworthy professional because they often offer to bear additional expenses without you having to pay for anything. Moreover, there will be no hidden charges or fees to worry about, besides you being able to bypass all valid taxes on the inherited place.