By Gigi Suhanic
National Post
FP Money
Saturday, August 31, 2002

Question: My mother was placed in a nursing home in May 1999. My father was still living at home but he passed away in February 2000. At that time the deed was amended so only my mother's name was present.

I understand that the house is no longer considered a primary residence and there is a grace period in which to sell the property.

Does the date start from the day my father passed away or when my mother went into the home?

How long is the grace period before I must sell the house to avoid paying capital gains? And, does the capital gains go back to when my parents purchased the house or another date?

Answer: The rules concerning the sale of a principal residence and the capital gain exemption are complex, says Adrian Mastracci of KCM Wealth Management in Vancouver. Two interpretation bulletins issued by CCRA, IT-120R5 and IT-437R, can assist. They outline the relevant income tax provisions that apply.

Generally, a property qualifies as a principal residence after 1971 if it is a housing unit, owned and inhabited by the taxpayer. However, all of the requirements must be satisfied for purposes of claiming the principal residence exemption. It should be remembered that a family has been able to claim only one principal residence exemption since 1982.

If the house is not occupied by the taxpayer, it may qualify as a principal residence for up to four years under a special election. The four years would generally commence from the day your dad passed away. However, if there is a potential for your mom to re-occupy the home, the situation may reverse.

The proceeds from the sale of a qualifying principal residence do not attract tax on the capital gains. Assuming that your mom's home qualifies as a principal residence from the start, the full sale proceeds should not attract taxation.

NOTE: The information provided above is intended for general informational purposes only. It does not constitute advice for anyone's specific situation. Everyone should always first consult directly with their advisors to determine the appropriateness of any information contained above before taking any action. KCM Wealth Management Inc. assumes no responsibility for any loss or damage arising from the use of, or reliance upon the above information.