What is the difference in tax treatment between selling a principal residence and holding it until death in Ontario?

✓ Accepted answer

In Ontario, the principal residence exemption allows you to sell your home with no capital gains tax, whereas holding it until death may trigger a deemed disposition for non-residents but generally defers tax for residents by stepping up the cost basis for heirs. Key considerations include:

• Principal Residence Exemption (PRE): If you file a PRE claim for the home in the year of sale, the capital gain is typically zero. This exemption can be applied to any year during which you held the property, even if you did not live in it during the year of sale.
• Deemed Disposition at Death: For Canadian residents, holding a home until death does not trigger immediate tax liability. However, the home is deemed sold at fair market value. This 'step-up' in cost basis significantly reduces the capital gains tax liability for heirs when they eventually sell the property, compared to using the original purchase price.
• Non-Resident Impact: If the owner is a non-resident, holding property until death triggers an immediate deemed disposition, requiring capital gains tax to be paid at the time of death based on the market value.
• Estate Taxes: Ontario does not have a specific estate tax, but the transfer of the home may involve probate fees calculated on the value of the estate, which can be mitigated by keeping the total estate value under the $100,000 probate fee exemption threshold where possible.
• Planning Considerations: Selling during your lifetime allows for better control over timing and liquidity, whereas holding until death defers tax but locks the asset in the estate. Consulting a tax advisor like those at Rosen Tax Law is recommended to model both scenarios against your overall estate plan.

admin · 2026-10-15 05:20:12