Q: I had joint tenancy with my mother on two properties: a condo in Toronto and a cottage in Kawartha Lakes. She died and I am keeping both properties. My accountant says that he can count the condo as my mom’s primary residence, but that I have to pay capital gains tax on the cottage.
A: When property is owned by more than one party, it is frequently held in joint tenancy with the right of survivorship. Spouses typically hold property as joint tenants, whereby upon the death of the first, the asset passes directly to the survivor and does not make up part of the estate of the deceased.
More frequently, elderly parents are holding property in joint tenancy with their children, which has pros and cons. Assets held in joint tenancy that pass to a survivor typically avoid probate fees (1.5% in Ontario). However, when you transfer an asset even if money hasn’t changed hands, you are deemed to have sold it at market value. Though the properties may have been legally held jointly by the two of you, the properties were still beneficially your mother’s until her death. Case law suggests that the presumption of advancement did not apply and you were technically holding half the properties in trust for your mother.
Every Canadian is entitled to have one principal residence that grows in value tax-free. Your mother had two properties, meaning that one of them was growing in value on a tax-deferred basis. On your mother’s death, she would be deemed to have sold the two properties and one sale would be taxable, regardless of her holding the properties jointly with you. --