Tax for Estate Planners: Sale of a Residence in an Estate

This is a baby note on the sale of residences in estates.

With real estate values in Greater Vancouver the way they are, it’s not uncommon for homes to rise in value while still in the estate. In circumstances like these, where the executor is contemplating selling the home (or otherwise getting pressure from the beneficiaries to do so), I’ve been asked whether the estate can claim the principal residence exemption on sale, or whether the estate must pony up and pay the tax.

The short answer is that estates (in most cases) don’t get to use the exemption.

The fortunate longer answer is that you still might be able to use the principal residence exemption, with some planning.

Distribute

Specifically, if a beneficiary is living in the home and the home can be distributed to that beneficiary, then on receipt of the property, that beneficiary is deemed to have owned the residence since the date the estate arose. In that case, since the beneficiary has lived in the home the entire time the estate has owned it, the beneficiary herself can sell the residence and claim the principal residence exemption.

Get creative

In circumstances where there is more than one beneficiary, this might require some juggling. For instance, if the will permits it, other beneficiaries not living in the home might receive cash or securities in lieu of their proportionate interest in the home. Of course, in some cases there will be insufficient non-residence assets to distribute evenly, requiring the executor to be a bit more creative. I've worked around this before and would be happy to discuss if this comes up!

And as a quick post-script, be sure to check all federal and provincial house-flipping rules before undertaking this planning. CRA View 2023-0990101E5 may be of assistance.

If you have any further questions about the principal residence exemption (or tax questions related to estate planning), you can feel free to reach out to us. The author can be contacted directly at jonathan@rkwlaw.ca or 604.425.1123.