Dear David: I bought a condo in 2018. The title is in my name. It’s not my principal residence, but my son lives there. I would like to sell the condo to my son for the $300,000 I originally paid for it, since I don’t want to make money off him. Is it better for me to sell the property to my son, or transfer ownership to him? – GIFTING PARENT
DEAR GIFTING: There are a few different ways to approach this situation. Assuming you sell the condo to your son for the amount you originally paid, you’ll have two concerning items: land transfer tax and income tax on capital gains.
Land transfer tax is based on either the purchase price of the home, or the value of the current mortgage on it. You will be taxed on the greater of these amounts. For example, if your son buys the condo from you for $300,000 and puts a $200,000 mortgage on it, land transfer tax will apply to the $300,000 purchase price.
If you gift the condo to your son and no money changes hands, you will save on land transfer tax, since the amount of land transfer tax assessed on zero dollars is zero. If there is a mortgage on the gifted property, it can be assumed by the recipient. You may also be able to avoid land transfer tax by gifting the property outright with no mortgage.
Unfortunately, there is no getting around paying tax on capital gains. As the owner of the property, you’re on the hook for it no matter what, since the condo is not your primary residence. Transfers are deemed to change hands at fair market value for income tax purposes, which will result in a capital gain. You can reduce your capital gain by deducting your purchase and selling costs, legal costs, land transfer tax on the original purchase, and the cost of any improvements made over the years that were not deducted as repairs.
For the sake of argument, let’s say you sold the condo to your son for $300,000, but it would have brought $500,000 on the open market. In this case, Canada Revenue could charge you tax on capital gains on the market value rather than the selling price. Canada Revenue could consider your son (the buyer) to have acquired the property at the price he paid but could consider you (the seller) to have sold it to him for $500,000 and would be entitled to charge you tax on the capital gain based on the property’s market value in the year of the sale.
PRO TIP
The best piece of advice I ever received was to surround myself with professionals. Before you make any decisions, call your lawyer and your accountant, who can assess the tax implications of whatever choice you make. Canada Revenue isn’t looking to overcharge you, but they do expect you to pay your fair share of tax. #Advice #AskDavid #TheNegotiator
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