My helped his daughter purchase her home, and is on title. What a re the tax consequences if he now gifts that to her
Did your client buy part of the house, or did they gift her funds with which to purchase the house?
I understand that he is on title, but the tax act is interested in the actual facts of the case not with who is on title. They may have other reasons for being on title (easier to get the mortgage, or insurance, or other), that have nothing to do with the beneficial ownership of the property.
So I would first determine who is the beneficial owner of the property. The daughter or both the daughter and the client?
If the client is a beneficial owner of the property, then you need to determine if the client can claim it as their principle residence. Then you need to determine if they should do so.
If they are a beneficial owner, and you determine they should not or can not claim for principle residence then it would be considered a disposition at the FMV. But this is the absolute worst result, as the client will pay tax, and the daughter’s future gain will be exempt from tax anyway so the increased ACB will be of no value for her.
You need to document why in your particular situation you believe that the client is not just on title but is a beneficial owner and must pay the tax. Consider especially what benefits owning a home confer and if your client received any of them beyond the increase in value of the home, because I doubt his intent going in was to receive that benefit.
Thanks for your reply, much appreciated. The client gifted money to the daughter to purchase the house. He is not a beneficial owner. He could not recall if he was a joint tenant or a tenant in common. My client is 78, so busy dotting the i’s and crossing the t’s. I believe that if they have a joint tenancy the house will go to his daughter without tax consequences on his death, and that if they are tenants in common he should be able to leave his share to her in his will.
Does that work?
It should (but I’m not a lawyer!). If they were willing I’d probably send them back to their lawyer and get him off the title before death so it doesn’t have to be dealt with at all
Thanks, good recommendation
Its not as simple…
Neither for tax, nor beneficial ownership, nor timing, nor estate (inheritance).
In these circumstances the CPA generally assists the client in laying out to the lawyer exactly what legal documentation needs to be drawn up and executed.
After that documentation is ready, the client, the CPA, and the Lawyer can review what the effects are, current and future, for ownership, tax, and for Estate purposes.
Unfortunately, some clients just go out and do stuff by themselves, believing they already understand all aspects of property law, estate law, and tax law.
Then we have to try and fix things up later. Sometimes it is too late to fix up later… The client should really have dealt with the professionals before any purchase occurred.
It may already be too late to avoid tax consequences for him - everything will need to be carefully examined.
What clients tell you verbally is often nothing more than wishful thinking or guesswork, so that wouldn’t be the evidence that would be relied on.
In addition, real property transactions are generally required to be in writing.
As well, beneficial ownership registries are already a thing (BC), and likely we will see them spread across Canada.