Understanding the First Dealings Exemption in Real Estate

Estate Planning for reducing tax on death

Did you know that your home might qualify for a unique exemption from probate tax? This exemption—known as the First Dealings Exemption—doesn't relate to the homeowner's age or the age of the property. Instead, it is tied to the digitization of property records that began in 1997.

What is the First Dealings Exemption?

The First Dealings Exemption applies to certain properties purchased under the old Registry system that have not changed ownership since their electronic registration (conversion to Land Titles). This exemption allows the executor of an estate to transfer these properties without going through probate, thus avoiding the associated Estate Administration Tax (EAT or probate tax).

Eligibility Criteria

To qualify for the First Dealings Exemption, the following conditions must be met:

• The property must be classified as Land Titles Conversion Qualified (LTCQ).

• There should have been no ownership transactions (called “dealings”) after the conversion from Registry to Land Titles.
  

The Role of the Parcel Identification Number (PIN)

The creation of an electronic Parcel Identification Number (PIN) corresponds with the digitization of land records during the conversion process which started in the late 1990s. This PIN is essential in determining if a property is a first dealings property by confirming whether ownership has changed since the PIN assignment.

Ownership Changes and Exemptions

Certain ownership changes do not disqualify the exemption, including:

• Survivorship transfers (for example, from one spouse to another through the right of survivorship).

• Mortgages

• Adding an additional owner such as a family member for no consideration

However, specific transactions after conversion—like removing a spouse upon divorce for consideration, or changing tenancy types—can disqualify the exemption.

How to Benefit from the Exemption

First dealings properties qualify for a probate tax exemption, which can be facilitated through the creation of a secondary will. This means that individuals with a secondary will can separate their assets into those that will be subject to probate tax (in the primary will) and those that can avoid probate tax (in the secondary will).

If there is no valid will, the exemption is not available, and full probate must be paid. To fully leverage the first dealings exemption, having both primary and secondary wills is recommended.

Consulting a Lawyer

To determine if your property qualifies as a first dealings property, a lawyer will use Teraview, the online land registry database. This will help verify if you purchased your home before the creation of your property’s PIN. If you remain an owner at the time of your death, your property is classified as a first dealings property.

Transactions such as gifting through joint ownership with a family member or inheritance by a joint tenant through survivorship will not nullify this exemption. However, if a new owner acquires your home after the PIN has been created, the exemption will not carry over.

Conclusion

First dealings exemptions are a significant consideration for estate planning. Those who qualify can save substantially on probate tax by creating a secondary will. If you believe you may qualify for a First Dealings Exemption, consult an estate planning practitioner for guidance tailored to your situation.