Co-authored by Alexander Alberelli, MTax
Coop
With the dramatic increase in real-estate values over the past
few years, many Canadians will face a hefty tax bill when they die.
At an individual's time of death, they are considered to have
sold all of their assets at fair market value and are consequently
liable for the tax on any appreciation. This is known as a deemed
disposition and it can hurt. The exception is for properties
passing to a spouse or common-law. In these cases, the property
passes at its adjusted cost base so no gain arises.
The deemed disposition potentially creates hardship for
homeowners that may find themselves having a high value home and
resultant tax bill, with little or no cash available to pay the
tax. However, the Federal Government provides a mechanism to reduce
and potentially eliminate tax through what is called The Principal
Residence Exemption ("the Exemption"). The Exemption is
available only on residential properties that are
