Written on February 4, 2013 – 7:33 am | by Corina Weigl
The recent decision of the Tax Court of Canada in Brosamler Estate v. R., 2012 TCC 204 may provide some tax relief in respect of probate taxes and other expenses. It remains to be seen whether the relief will be limited to the particular circumstances considered and whether other factors may limit the application of the decision. (In this regard, see Barry Corbin’s recent article called “Probate Costs and Capital Gains & Losses” which appeared in Money and Family Law vol. 27 No. 8, August 2012. )
The issue addressed by the Tax Court in Brosamler was whether a portion of the probate fees and legal fees paid in respect of Canadian real property sold by the foreign executrix could be added to the adjusted cost base of the property as a cost of acquisition (thereby reducing the taxable capital gain and resulting tax liability) or could be deducted as an outlay or expense incurred for the purpose of disposing of the real property.
The facts involved the Estate of an individual who died in Germany but owning real property in British Columbia. The deceased’s Will appointed Linda Leonard as his executrix and beneficiary. Her entitlement as a beneficiary resulted in a liability for German inheritance tax. This required her to sell certain of the properties.
The need to sell some properties required her to obtain the appropriate certificate from the German court and thereafter an ancillary grant of probate from the British Columbia court. The latter process resulted in the payment of probate fees, with the quantum of the fees based on the value of the assets situate in British Columbia, as well as legal fees.
When reporting the disposition of the properties for tax purposes, the executrix added a portion of the probate and legal fees to the cost base of the property. This resulted in a reduction of the ultimate tax liability payable by the estate.
Relying upon statutory provisions and jurisprudence which provide that real property devolves upon and becomes vested in the executrix on death, the Ministry failed to convince the Tax Court that these were not costs related to the acquisition of the property. The Tax Court concluded that the title the executrix needed in order to be able to sell the property was one that could be registered under the land titles system. This form of title required her to obtain probate and as a result of the probate process both probate and legal fees were payable. As a result, these were costs related to the acquisition of the property by the executrix. [Even if the Tax Court had not accepted this, there is arguably a good basis for the position that these fees were an expense incurred for the purpose of disposing of the real property.]
While there are a number of issues that may limit the application of this decision, including the fact that it was decided under the Informal Procedures process which means other courts are not bound to follow it, it is one that may open the door for similar tax treatment in the right circumstances once again.