When your loved ones pass away they might leave you with some property. Most people are not prepared for such a tragic event in their life and do not know what to do when they inherit property.
It is such a situation that you do not know how to deal with until you go through it, so it is evident for people to be confused while figuring out the intricacies of tax systems in Canada.
However, there is no property inheritance tax Canada, but there are situations wherein you might have to pay taxes on the properties that you own. This can often lead to confusion, and it is important to understand the tax consequences of inheriting a property.
Here are some of the basic information about inheritance tax laws in Canada
1. Rules Regarding Property Inheritance Tax in Canada
As per the Canadian government, when someone dies and leaves some property to their heirs, then it is considered as a matter of disposition. So, if a person dies and leaves their house for their children to make the property their primary residence then there are no taxes levied on taking ownership of the property.
On the other hand, if the inherited property is a secondary home, besides the primary residence, then you would have to pay capital gain taxes before taking ownership of the house.
If you inherit a commercial property, then it is also taxed as a capital gain, and you would have to pay it before taking ownership of the property.
So, this makes it important for you to understand what capital gains are.
2. Capital Gain and Capital Gain Taxes
Capital gain is simply the gain or profit you make on the sale of assets.
For instance, if you buy an antique for $30,000 and sell it for $100,000, then the difference between the purchase price and selling price would be deemed as your capital gain which you would have to report on your income tax.
In Canada, capital gains are considered taxable income, and this tax is the amount that you pay on the profit made from such a sale.
So, people often decide to sell the house they inherit since many have a house of their own. So, when they sell the inherited house, they have to pay an inheritance tax in Canada.
Following are the few different situations that you should be aware of to properly determine the tax you would have to pay:
- Capital gains are not taxable in Canada if you are selling the primary residence. Moreover, even if you inherit a primary residence, there are no capital gains or anything of that sort.
- If you are planning to sell an inherited property, you are only liable to pay half the tax on your total capital gains.
- In case you are selling a secondary residence or commercial property, the capital gains are fully taxable.
Traditionally, the amount of capital gain is determined by subtracting the fair market value at the time of the purchase from the final selling price. However, if there are no solid records of the purchase price of the property, then the market value at the time of possession is considered as the purchase price.
