While the thought of inheriting a property is like a dream come true for many, selling inherited property in Canada is a challenging task. According to the Canada Revenue Agency (CRA) rules, the country does not impose any inheritance tax on property.
You have to connect with top real estate owners and lawyers to complete the paperwork and sell your home at a profitable rate. It is a complex process that involves financial and legal formalities.
Read on to understand how sales tax is calculated for selling an inherited property in Canada.
How Does Inheritance Work in Canada?
Inheritance is decided according to the will of the property owner after they die. The property and the assets are distributed or passed on to the beneficiary following the Ontario Succession Law Reform Act.
There are two types of homes inherited in Canada. It includes primary and secondary residence.
If you inherit a house where you can live full-time, it is known as a primary residence. If you inherit a cottage or a vacation home, it is called a secondary residence.
You may need to pay for ownership transfers with a secondary residence.
Rules for Selling Inherited Property in Canada
When you inherit a property in Canada, the first thing is you must get a fair market appraisal on the asset. It includes the deceased person’s tax returns.
The next step is to sell the house at maximum profit. The profit you gain is known as capital gains. According to Canadian law, capital gains on every sold property are considered a type of taxable income.
Capital gains are the difference between the property’s fair market value at the time of inheritance and the current selling price.
Capital gains tax is calculated as the amount of money you must pay on the profit you made while selling an inherited property in Canada.
Types of Capital Gains Tax
There are different situations where you have to deal with the Canadian capital gains tax on an inherited property when you decide to sell it.
When you wish to sell a primary residence, capital gains are non-taxable. The passing of a primary home is itself considered a sale of residential property.
When you sell an inherited property, you are liable to pay a tax of around 50 percent of the total capital gains.
Similarly, capital gains are a taxable income when you sell a commercial or secondary property in Canada.
Other Additional Fees
Here are some additional charges that you must bear while selling an inherited property in Canada.
You might need to pay some commission to the real estate firm.
You may have to pay the attorney charges to handle the documentation process.
The process of validating the will is called probate. The probate fee is the estate administration fee. It will include the total asset value of the inherited property. It will consist of the associated bank accounts, vehicles, stocks, or investments, amongst others.
Hence, it is essential to get all the homes insured as soon as you inherit the property. You may need to submit the death certificate and the will to the home insurance provider.
Getting the documents in place is essential to ensure a smooth selling process through experienced realtors in Canada.