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Income tax — tax savings on selling home

Two brothers consulted me about the HST. They were helping their elderly mother sell the home she had lived in for many years. The home was on a large lot which could hold a second home, and they had obtained permission from the city to sever the property, so that they could sell the two parcels separately.

The brothers' question for me was about whether the HST would apply, and whether it would make a difference which property they sold first. I put their minds at ease, after reviewing all the facts, by confirming to them that in their particular situation, no HST would apply no matter which property was sold first.

But I realized they had a larger problem. If they completed the severance and the mother sold the two parcels separately, she would be liable for tax on the capital gain on the parcel of empty land. This would cost her more then $500,000.

I explained the situation carefully to my clients. As long as their mother sold only a single property, since it was within the 0.5 hectare normally allowed by the CRA as a "principal residence", the entire property would likely qualify for the principal-residence exemption under CRA administrative policy.

Thus, the family could save over $500,000 in tax by making arrangements to complete the sale as a single sale to one person, even if there were two buyers in place.

Unexpected tax savings!

(2015)