Gifting a second property

Couple bought a home in 2019 for a relative because relative could not secure financing. Relative has lived in home and paid all expenses including mtg payments. There has never been a rental agreement drawn up and couple have never declared rental income. Couple is wanting to sell home to relative for balance of mortgage. Of course the couple does not want to realize a capital gain as there is none. Can anyone advise as to CRA stance on this.

I am sure you will get some interesting comments on the forum regarding the " couple does want to realize a capital gain"

The Canadian tax system does not work on what we want. I doubt anyone who has to pay tax on their second property actually wants to.

This is a second property and while it was not rented… it would still be subject to capital gain the same as you would treat a cottage.

The client needs to talk to the real estate lawyer for advise on selling this property. After the legal documents are drawn up and signed, then you will have the necessary information to properly complete the tax return.

It may or may not have a gain; this is dependent upon the legal documents which have yet to be drawn up.

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Would this help?

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Yes, Thank you

The legal paper work will show a disposition at cost and therefore no capital gain but since this is an arms length transaction, will cra consider this sale to be at FMV

Something similar happened to me. I had cosigned for a friend whose credit was inadequate. When the time came to renounce my interest in the property, the notary had a clause in the deed of sale explaining I had consigned (bank condition) to enable the other party to get the loan to purchase the property, that I had no interest in the property and realized no advantage from possessing or disposing. I don’t recall reporting it on my income taxes 8 years ago… . My guess is that if Revenue Canada and/or Revenue Quebec picked it up in their database searches, they were satisfied with the document.

I had a similar case, where the mother was on title as owner, and she had a mortgage (son was unable to get a mortgage) on her name, but the son and his wife were making the payments and other expenses. Now when the son’s financial situation got better, his mother transferred the property in his name for the balance of the mortgage amount. Consult with CRA, and the mother didn’t pay any tax as there was no capital gain. I hope your client can prove that their relative was making the payments.

One question that I always asked when I was asked a similar question is, how come the “relative” or whoever that has the money, not add their name to the title since the main purpose is only to help secure financing.

If someone can’t be on the mortgage, why do you want them on the title? In future, when they will be able to approve for a mortgage, then transfer the title.

I don’t know if it applies to everyone. so, if you are the child, can’t afford a mortgage, but your parent can, will the bank reject your mortgage by adding another person’s name to it? The answer should be no. If the main purpose is to help the child or relative, wouldn’t that be the preferred option? Especially, if the end result is for the child or relative to have the house.

Will you pay for a 30% down payment and pay all mortgage payment if you don’t have title, in the case of a relative?

I am not here to make determination or providing answer, I am just sharing my thoughts when I was asked these type of tax planning question, when I don’t even have all the facts

Your questions are not irrelevant. First of all, the mortgage amount is way bigger than 30% and not necessary you have to pay 30% down. The child and/or the relative is the one who needs the help and has to trust. It’s happening in society.

Thanks for your input Jeff
Yes in an ideal world the proper paperwork and legalities would be dealt with from the start. But as you know, quite often they are not.

The CRA will know about this change on the title as all land transfer records are feed to the CRA’s computers. Better report it…

As this is a transaction that occurred after the 2016 change in rules, anything that happened before 2016 about reporting probably does not apply.

As this is a transfer to a not at arms length person, Section 69 permits the CRA to change deemed proceeds if it is deemed to be a fraudulent transaction. Caution is advised to the couple who bought originally as it may be deemed that they were the person who later sells the property.