Gifting a Home to a Child

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As housing prices in many major metropolitan areas continue to rise, home ownership is becoming increasingly difficult
for the younger generation. As such,some parents and grandparents may consider helping their children with the
purchase of a home or condominium.
 

Considerations

Two important considerations when supporting the funding of a property are the future tax implications
(should the property be sold at a later time) and protecting the asset from the potential claims of others
in the event of changes in family structure.These factors may impact the way in which you support
the purchase.


Potential Future Taxes — If the home is not designated
as a “principal residence”, there may be significant future
tax consequences since the owner must pay income tax
on any capital gains realized upon its sale. In provinces in
which probate tax applies, the property may be subject to
further tax upon the death of the owner.


Family Law — If the child is married or in a common-law
relationship, there may be concern with what will
happen to the property in the event that the couple splits.
Depending on how the transaction is structured, the asset
may be protected from “equalization.” As family law can
vary by province of residence, legal assistance should be
sought in the province in which the child resides.

 

Potential Options

There are a variety of ways to fund a potential property purchase. Here are some ideas:

Purchase the property in your name — Allowing your child
to use the property but keeping it in your name may avoid
potential family law issues. However, if you own another
property in your or your spouse’s name, capital gains tax
will eventually be paid upon the disposition of one of the
properties since a family unit (you, your spouse/common-law
partner and any minor children) can designate only one
property as a principal residence.
 

Gift cash to the child to purchase property — As there
is no gift tax in Canada, giving cash to your adult child
to purchase a property will have no tax implications. The
child may also be able to use his/her principal residence
exemption upon the eventual sale of the property. However,
in the event of the child’s marital breakdown, his/her spouse
may end up receiving half of the value of the property.

Lend funds to the child to purchase property -
Providing your child with an interest-free loan/mortgage (the
loan may bear interest, but you may be subject to
tax on the annual interest amount) may allow your
child to claim his/her principal residence exemption
on the disposition of the property and may provide
better protection under family law legislation as the mortgage
liability would reduce net family assets.However, 
without proper planning,you may be subject to probate tax
in provinces where applicable on the amount of the
mortgage if the mortgage remains outstanding upon
your death.


Gift funds to a trust that purchases the home —
 Although this can be complex, it may be an effective
way to share wealth among various beneficiaries
while avoiding potential tax and family law issues.
Parents may retain legal control over the property
as the trustee, while the child is the beneficiary of the trust.
If the beneficiary, his/her spouse and minor children
do not have another residence, the trust may be
able to claim the principal residence exemption
to avoid tax upon a sale.


Seek Assistance
As always, we recommend seeking professional advice if you are considering options for assisting your child in purchasing a home. A tax professional and a family law expert can help to map out the best options for your particular situation.