In Saskatchewan, it is very common to add children or a spouse to land titles to avoid probate costs and make it clear who is eventually to receive the land. There are risks involved when this is not documented properly.
When a child is added to title, are you selling half the land to them or are you adding them for estate planning purposes only? What happens if your child goes bankrupt or gets divorced and the ex-spouse thinks they have a claim to the land? Typically, when a spouse or child is added to title, the intention is for estate planning purposes only and no sale is recorded on the tax return.
Years later, it can become fuzzy who owns the land for tax purposes. For example, a farmer inherits land that his parents gifted to him and not to his spouse. He then adds his spouse to title. Next, a child is added to title for succession planning. However, none of this was reported as a sale on a tax return and the original farmer is still the 100 per cent beneficial owner of the farmland for tax purposes.
When someone is added to title, we recommend legally documenting your intentions. If you are selling half the land, it should be documented and reported on the tax return. If a spouse or child is added to title for estate planning purposes, this is joint tenancy with right of survivorship. This creates a bare trust, where the owners on title do not match the beneficial owner that receives all the income from the land.
The federal government first announced bare trust reporting requirements several years ago, which would require filing a yearly T3 trust return. However, implementation of mandatory filing has been delayed several times. The most recent announcements included exemptions for principal residences where one of the people on title lives in the house. Right now, there is no exemption for farmland and bare trusts need to be filed in early 2027 for 2026. However, this could change.
The reason for bare trust reporting is to crack down on the “wild west” of who is the owner of the property. In the example where a farmer added a spouse and child to title, only the farmer who was the original owner of the land is the beneficial owner, owning 100 per cent of the property for tax reporting purposes, even though there are three names on title.
The alternative to adding a child to title is distributing land through your will. In Saskatchewan, this requires the estate to go through probate, with a cost of 0.7 per cent of the fair market value ($7,000 per $1,000,000 of assets), and 0.4 per cent land title transfer fees.
The overall 1.1 per cent cost may be better than a yearly bare trust filing, depending on the value involved and other risks. If you add your child to title and then decide to sell the land, they will have to sign off on the sale. This could be an issue if your child doesn’t agree with selling “their inheritance.” If you add a child to title to avoid probate, but your child has a divorce, and the land is disputed, the cost can be far higher than 1.1 per cent of the land value.
Missing the capital gains exemption
Canadian individuals have access to a $1,250,000 “tax-free” capital gains exemption provided they own qualifying assets. Farmland qualifies if someone in the direct family tree has actively farmed the land for at least two years with gross farm income in excess of their off-farm income. This excludes hobby farmers with lots of off farm income.
When someone dies with joint land with the right of survivorship, probate often isn’t needed and the deceased landowner is just removed from title. Claiming capital gains exemption on the final tax return for the deceased landowner is frequently missed. This can result in hundreds of thousands of additional taxes when the land is sold.
Claiming capital gains exemption on the final tax return increases the tax cost (adjusted cost base) for individuals who inherit the land. When the land is eventually sold there is a smaller gain to be taxed on their return as a result of the increased ACB. There is no alternative minimum tax for claiming the capital gains exemption on the final return and the only cost is repaying the Old Age Security (OAS) in the year of passing. This cost depends on when during the year the person passes. In January, only one month of OAS needs to be paid back; if in December, you would need to pay back the whole year’s OAS (approximately $9,600 in 2025 if you are over age 75).
Key takeaways
Please legally document what your intentions are when someone is added to title and beware of the potential hassle of bare trust filings in the future.
When someone passes who owns qualifying land, make sure that the capital gains exemption is claimed on the final tax return. Keep this page of the final tax return in a safe place with your will, lawyer or accountant to document the updated adjusted cost base of the land when it is next sold or transferred.
Levi Derksen, CPA, is a senior manager in the ag team at Buckberger Baerg & Partners LLP in Saskatoon. You can contact him at [email protected]
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