The Beneficiary: \u201cDavid\u201d is a 47-year-old entrepreneur with a background in investment banking. He grew up in a middle-class income household, worked hard and slowly climbed his way up the real estate ladder. He\u2019s been married for 20 years and has two teenaged kids whom he wants to similarly make their own way in the world. Despite the property he owns, David also wants a fairer real estate market. <\/p>\n
The Inheritance: After the death of a parent three years ago, David and his wife inherited the first of many properties: A $2.3-million home in the Greater Toronto Area. Last summer, when his (divorced) father died, David also inherited his $1.5-million home. All this atop David\u2019s own immediate family home, a perfectly-sufficient-sized house worth about $3-million, which he also owns. \u201cI have all the houses I need and don\u2019t need any more houses,\u201d he says. Too bad, David: Coming up next, he\u2019s also in line to receive a million-dollar-ish condo downtown. <\/p>\n
What this retired teacher did with $500,000 and cabins inherited from her mother <\/a><\/p>\n What he did with it: Though originally concerned about an epic looming tax bill from his first (and most expensive) inherited property, David instead found himself on the other end of the tax spectrum. \u201cBecause it was my mom\u2019s primary residence and because we decided to sell the house pretty immediately, I discovered we were completely exempt from taxes,\u201d David said. \u201cMinus real estate fees, the rest was just deposited into our bank accounts tax-free.\u201d <\/p>\n For that, David can thank the \u201cprincipal residence exemption\u201d \u2013 probably the largest tax break regular citizens will ever get in this lifetime, although David could receive it any number of times. Provided the homeowner(s) meet the requirements, a designated principal residence can shelter most \u2013 or all \u2013 profits from a sale from capital gains tax. <\/p>\n A very basic summary of Canada Revenue Agency\u2019s requirements: A \u201cprincipal residence\u201d is a housing unit (a house, apartment, condo, cottage, houseboat, trailer, etc.) that\u2019s owned (or co-owned) and \u201cordinarily inhabited\u201d most of the time (though there\u2019s no specified minimum number of days). If \u201cordinarily inhabited\u201d every year by the owner, the exemption\u2019s easy and straightforward \u2013 provided the sale is reported on Schedule 3 of the T1 Tax Return, which itself became a requirement in 2016. Failure to report can disallow one\u2019s claim and result in penalties. <\/p>\n David followed all the laws and rules, of course, and after all is said and done, he expects he\u2019ll ultimately receive about $6-million tax-free. Like the money he\u2019s already received, he\u2019ll invest it quietly in \u201chigh-quality, publicly-traded companies\u201d and tell almost no one. \u201cWe live a very low-key lifestyle and people don\u2019t know we have what we have. We\u2019re going to keep it that way.\u201d<\/p>\n