Ask Allan Forum
Get expert answers to your tax questions straight from Allan, our owner and experienced CPA. It’s free, direct, and designed to help you make the best decisions when it comes to your taxes.
Mother-in-law, a Canadian Citizen, passed away on Jan 30, 2017. She had pension income for Jan/2017 only, and had no other Canadian assets except for a property in Hungary she inherited from her mom in 1983 along with her 2 siblings. The cost base of the foreign property was worth less than $100,000 at that time. The property has been sitting idle since then, and maintained by her sibling's daughters living in Hungary ... . Pay taxes, cut grass, etc. It is not an income generating property and was solely used for personal use. There used to be a house on the property to vacation, but over time it collapsed, and now just a piece of land. We completed her 2017 Final T1 tax filing a few months ago and added a note saying that her portion of the foreign land she inherited in 1983 was worth less than $100,000. We recv'd back her notice of assessment from Revenue Canada indicating no money is owed.
It has come to our attention last week, that the inheritors in Hungary, want to sell the property as they can no longer maintain it. We were told that it may be worth $600,000 Canadian divided by 3 inheritors. Her share of the property may be $200,000 less expenses to sell. This would be divided between her 3 beneficiary children living in Canada. A lawyer will be hired in Hungary to handle deed transfers of names and sale of property. We are hoping the sale to be completed by Aug/2018.
What is your advise as to how we should go forward in reporting to Revenue Canada. How should we now report the deemed disposition of the foreign property upon death .... when we knso little about cost and sell price. now that we plan to sell the property by summer. relative of the capital gain upon death or after the sale of the mothers' Final T1, capital gains after the sale of the foreign property to the 3 beneficiary children.
Hi Sam, for Canadian tax purposes, the cost basis for your mother-in-law of the property in Hungary is equal to the market value of the property on the date of inheritance (i.e. 1983). When your mother in-law passed away, all of her assets would be deemed to be disposed (i.e. sold for tax purposes) at their market value at that time. As a result, her estate would have to pay capital gains tax on the appreciation in the property from the date of inheritance to the date of death. The executor of your mother-in-law's estate, must amend her 2017 terminal to report this gain.
In addition, the cost basis of the property for your mother-in-law's children is equal to the fair market value of the property on the date of her death (i.e. January 2017). Her children will pay capital gains taxes based on the difference of the selling price and the cost basis, for their share only. Note that if the cost amount of the property for each child is more than $100,000, then they will each have to file form T1135 with the CRA too.