Levatte Estate – Tax Court of Canada finds that 40(4) avoided the need for an estate to make a principal residence designation

An individual (Mr. Levatte) devised a home on his death to a spousal trust, which then was deemed to have disposed of the home on the spouse’s death. Russell J found that the correct interpretation was that the spousal trust was effectively deemed to have designated the home as a principal residence for all the years for which it would have been eligible for such a designation by Mr. Levatte (which, on the evidence, was some, but not all, the years of his ownership of the residence as he appeared to have designated another property as his residence for some of those years). Thus, it was not necessary that a principal residence exemption had been made – only that it would have been available.

The final return for the spousal trust (which had a saole trustee, Ms Warner) was a assessed a late-filing penalty under s. 162(1) of 5% as a result of the return being filed one day late. In vacating the penalty, Russell J stated:

Ms. Warner[‘s] … husband was dying of cancer and in fact passed away only days later …leaving her as sole parent of three children.

… I do not require specific details to appreciate what a difficult time this would have been for Ms. Warner. The fact that the return was late by only one day does indicate reasonable efforts most probably were made to file the return on a timely basis, although unsuccessful.

Neal Armstrong. Summaries of Levatte Estate v. The Queen, 2019 TCC 177 under s. 40(4) and s. 162(1).