Property Ownership and Tax Implications

Property ownership can be complex, especially when it involves spouses and potential tax implications. There are several scenarios to consider, including when a spouse owned property before marriage, when a spouse has a company with potential liability, and when a couple is in a second marriage with multiple real estate properties.

Property Ownership Before Marriage

If a spouse owned property before marriage and the property title only remains in their name, there are several considerations to keep in mind. For example, if the property is converted into a rental property, it may be considered a sale, triggering capital gains or losses. This can have significant tax implications, especially if the property has increased in value.

Conversion of a Main Residence into a Rental Property

Converting a main residence into a rental property can have tax implications. If the property has qualified as the main residence for all years of previous ownership, no tax will be paid. However, if the property is converted into a rental property, the adjusted cost base for future capital gains tax will be set. Unless a choice is made at the Canada Revenue Agency (CRA) to continue to describe the property as the main residence for up to four years, the conversion will trigger a capital gain or loss.

Conditions for Continuing to Describe the Property as the Main Residence

To continue to describe the property as the main residence, certain conditions must be met. These include:

• Not claiming another property as the main residence during those years
• Not claiming capital cost allowance (CCA) or depreciation on the net rental income reported in the tax return
• Being a resident or based in Canada

Capital Gains Tax if the First Spouse Dies

If a taxpayer transfers assets to their spouse, these assets transfer at the original adjusted cost basis. If the transfer occurs during the spouse’s lifetime, the subsequent income, including capital gains, will be attributed to the transferring spouse. However, if the spouse dies and leaves their assets to their partner, the same transfer can apply to the price, but the subsequent income will not be attributed to the first spouse.

Triggering a Capital Gain

The executor of the estate of the deceased can decide to trigger a capital gain for some or the entire capital gain. This can happen if the deceased died at the beginning of the year and had little to no income or if they had capital losses or other tax deductions or tax credits available.

Second Marriage and Multiple Real Estate Properties

In a second marriage, multiple real estate properties can be owned jointly or individually. If the properties are owned jointly, they can be held as common tenants, ensuring that each spouse’s individual shares in the ownership of the properties from their first marriage pass to their children.

Company Ownership and Creditor Protection

If a spouse has a company with potential liability, the ownership title can be registered on behalf of the other spouse for creditor protection purposes. This can provide an added layer of protection for the spouse and their assets.

Conclusion

Property ownership and tax implications can be complex, especially when involving spouses and multiple real estate properties. Understanding the rules and regulations surrounding property ownership, conversion of a main residence into a rental property, and capital gains tax can help individuals make informed decisions and minimize potential tax liabilities. It is essential to consult with a financial advisor or tax professional to ensure compliance with all tax laws and regulations.