Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: a) Where an individual dies holding personal use property which becomes property of the estate, does the property retain its nature as personal use property?
b) Does the answer depend on the use which is made of the property by a beneficiary of the estate?
Position: Question of fact. In this situation, the property would be capital property to the estate which would not qualify as personal-use property.
Reasons: The property is not used by the beneficiaries of the estate or or any person related to the beneficiaries.
2011 STEP Round Table
Question 10 - Personal-Use Property
Where a taxpayer disposes of personal-use property, no loss may be claimed (with the exception of listed personal property where such a capital loss may be claimed against capital gains from listed personal property).
a) Where an individual dies holding personal-use property which becomes property of the estate, does the property retain its nature as personal-use property, or does it then become capital property in the hands of the estate?
b) Does the answer depend on the use which is made of the property by a beneficiary of the estate?
For example, suppose that an individual dies holding a cottage property. The property becomes property of the individual's estate and is not used by any of the beneficiaries. The property is held on the basis that it is to be disposed of when certain matters concerning the estate are resolved (the obtaining of probate, the settlement of possible legal issues, etc.). In the intervening period, the property declines in values. Does any resulting loss now become a capital loss from the disposition of a capital asset rather than personal-use property such that the capital loss is not denied and can be utilized by the estate?
CRA's Response:
The deceased person and his estate are distinct taxpayers. Therefore, the determination of whether the property, owned by an estate is inventory, depreciable capital property or non-depreciable capital property, must be made on its own merits and facts.
In the situation described, we are of the view that the real property would generally qualify as a non-depreciable capital property to the estate on the assumption that the property has not been rented or otherwise used to earn income.
The question that must then be answered is whether the property was used primarily for the personal use or enjoyment of the heirs of the deceased or persons related to them during the period following the death and before the sale. A cottage owned by an estate which has not been used by any of the estate's beneficiaries or any person related to the beneficiaries, would, in our view, not meet the requirements of subparagraph (a)(iii) of the definition of personal-use property as found in section 54. Therefore, provided that the cottage is not acquired by a person affiliated with the estate, a capital loss realized on the sale of the property by the estate would not be deemed to be nil pursuant to subparagraph 40(2)g)(iii) and would be deductible against capital gains of the estate.
Anne Dagenais
2011-040187
June 3rd, 2011
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