Inheriting a House with Siblings in Canada: What You Need to Know

Inheriting a house with siblings in Canada

Inheriting a house from a parent or relative can be a mixed blessing.

On one hand, you may receive a valuable asset that can provide you with a place to live or a source of income.

Unless the will says something different, each child gets an equal part of the house.

Sometimes, instead of sharing, one sibling buys the others out to be the only owners.

If one sibling doesn’t want to sell, there isn’t much that can be done about it.

On the other hand, you may face some challenges and complications, especially if you have to share the inheritance with your siblings.

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Inheriting a House with Siblings in Canada. Photo: Facebook

How do I avoid paying capital gains tax on inherited property in Canada?

Capital gains tax is what you pay when you sell a property for more than its original cost.

The adjusted cost base (ACB) includes the purchase price and any added value, like improvements.

When you inherit a property, the ACB is usually the property’s fair market value when the owner passes away.

They are selling it for more than the ACB, which means paying capital gains tax on the profit.

In Canada, you can reduce this tax on inherited property by:

1. Using Principal Residence Exemption:

If the inherited property was the deceased’s or becomes your main home, you can exclude the capital gain from your income. However, you can only use this exemption for one property at a time.

2. Transferring to a Spouse or Partner:

Inheriting or transferring the property to a spouse or partner lets you defer capital gains tax until they sell or pass away. The property is treated as transferred at the ACB, avoiding capital gains at that time.

3. Donating to a charity:

Donating the property to a registered charity eliminates capital gains tax and provides a charitable donation tax credit. You need a fair market value appraisal and a receipt from the charity.

What happens if you inherit a house with a mortgage in Canada?

In Canada, inheriting a house with a mortgage means deciding whether to keep it and take over the mortgage or sell it to clear the mortgage.

If you choose to keep it, contact the lender with documents like the death certificate, will, and probate certificate.

The lender might need you to qualify for the mortgage based on your income, credit, and debt.

If not, or if you don’t want to take on the mortgage, selling the property or finding alternative ways to clear the mortgage, like refinancing or borrowing, may be necessary.

If you share the inheritance with siblings, you must agree on how to handle the mortgage.

Options include splitting payments and property ownership, buying out your siblings’ share, or selling the property and dividing the proceeds after settling the mortgage

How is inheritance divided in Canada?

In Canada, inheritance follows the deceased’s will, or intestacy laws if there’s no will.

A will is a legal document stating how assets should be distributed after death.

Intestacy laws apply when there’s no will, or it is invalid or incomplete.

These laws vary by province or territory, generally prioritizing the spouse or common-law partner, followed by children and other relatives.

If you inherit a house with siblings, division depends on the deceased’s will, joint tenancy, or tenancy in common.

Joint tenancy means shared ownership with the right of survivorship, automatically passing the deceased’s share to the surviving owners.

Tenancy in common grants distinct shares, allowing individual selling or bequeathing.

With a will, property division is as per the specified beneficiaries.

Without a will, or if it doesn’t mention the property, intestacy laws apply.

For joint tenancy, surviving joint tenants inherit, bypassing the will or intestacy laws.

For tenancy in common, the deceased’s share follows the will or intestacy laws among the heirs.

Do beneficiaries pay tax on inheritance in Canada?

In Canada, beneficiaries are not taxed on the inheritance itself, meaning they don’t pay income tax on the assets received from the deceased’s estate.

However, inheriting a property doesn’t mean there’s no tax involved.

The deceased’s estate might have to pay capital gains tax on the property, and beneficiaries may face capital gains tax upon selling or changing the property’s use.

Additional taxes or fees, such as property tax, land transfer tax, probate fees, legal fees, and real estate fees, may also apply.

Beneficiaries must seek advice from a lawyer or accountant to grasp the tax implications and obligations of inheriting a property in Canada and plan accordingly.

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