I don’t know why I keep getting these clients. I guess it’s part and parcel of being in the GTA and no one can afford a home on their own anymore. This is a new client who tells me that she helped her son buy a condo in 2017. Her name is on title (joint tenancy with him) and the mortgage. But he made all payments including the down payment and lived there until May 2021. In June, he moved in with his girlfriend and started renting this condo out to a 3rd party. In December 2021, the mother “gifts” her share of the legal title to her son. The lawyer told her there would be no tax consequences!!!
Lots of tax issues to unpack here. I explained to the mother that unless she can prove that her son had beneficial ownership from the beginning, she has to report the gift to her son as if she sold her share to him at FMV. But what sort of proof should I be asking for? What is my obligation as a tax preparer in terms of doing an ownership assessment or should I be referring her to a lawyer?
Wondering if anyone else has dealt with a similar beneficial ownership issue. I’m assuming it must be pretty common in these hot real estate areas.
Your obligation? First…to yourself: in the absence of a clear (preferably written…and not “yesterday”) agreement with the son, you would express that the ITA views it exactly as you stated…and not reporting it as such is potentially a criminal offence and you want no part of that.
If they never did it then, they really can’t do so retroactively …they can’t write the agreement now because that wasn’t the intention at the time…
Having said that…they MAY have correspondence that - for whatever reason - the mortgagor required mom to be on title. If that’s so…start there. But given that you say she “helped” him…I’m dubious…how could he have made “all payments including the down payment” if she “helped” him?
Walking away backwards…slowly. This is a rat’s nest.
I had a feeling that word would get me in trouble. By “obligation” I meant that there is only so much legal training I have and I don’t feel qualified to make a determination of a beneficial vs legal ownership. In absence of a formal notarized legal document (which many mothers and sons don’t have), what should I be after? Is “back of a napkin” agreement between mother and son enough?
@SmallBizGuy I think you are right about backing away. I haven’t accepted her yet and I don’t think my small practice can handle the potential liability. I wish lawyers and realtors had some tiny bit of tax training to give their clients the heads up.
@gaywise It can be. Would that be enough from my perspective as the accountant to accept the position of beneficial ownership?
I don’t necessarily think that if a parent gives their adult child some money toward a home purchase it would constitute ownership. It would depend on how much money and the other determining factors.
@mjeconsulting Thanks for this. Clause 8 is leading me to believe that the mother transferring her share to the son may not be a disposition.
¶ 8. Since possession, use and risk are the primary attributes of beneficial ownership, registration of legal title alone is of little significance in determining the date of disposition. Factors that are strong indicators of the passing of ownership include:
(a) physical or constructive possession (refer to IT-50R),
(b) entitlement to income from the property,
(c) assumption of responsibility for insurance coverage, and
(d) commencement of liability for interest on purchaser’s debt that forms a part of the sale price
This is the third time this month that I have come across this type of situation (parent and child both on title). If it’s this common for me, I’m assuming it’s common for others and I’m curious how you are handling them.
I’m sorry to say so, but there seem to be more holes in this story than in a brick of Emmethal:
the mother “helped” the son…but the son paid “all” of the downpayment and ongoing payments. These two are mutually exclusive,
the mother was on title: why? There clearly was a reason this was done. Either the mother is a co-mortgagee or provided some sort of a guarantee or some other requirement was made. OR they made an agreement to have mom on title for some other reason…to which the query is: why?
there either IS or IS NOT a written agreement; it appears there is not
there MAY or MAY NOT have been discussion at the time of purchase as to the terms thereof. ONLY if there were, and only then, can there be a subsequently executed written agreement to give effect to the oral agreement made at the origin. This would also answer the question above of “why?”.
I’m just not buying what they’re selling, and certainly not without a LOT more explanation. YMMV.
Back in the old days when a person or a couple didn’t have enough credit worthiness to afford a mortgage the bank would request or accept another person (lets say a parent) co-sign or guarantee the mortgage.
Nowadays it seems the banks are leaning more towards having the parents name actually on the mortgage document as a borrower. Of course this requires their name to be on the property title. One solution that is being used in these parts is the deed to the real estate goes into a “tenant in common” ownership with junior having a 99% interest and mom & dad holding a 1% interest in the property. This ownership structure seems to satisfy the bank (mom & dad’s name can be listed on the mortgage as borrowers, but liable for 100% of the debt) and if there were some future capital gains assessed against mom & dad it because the property was sold it would only be on the 1% interest (assuming for all intents and purposes it was junior’s home).
It’s funny reading this type of posts, a lot of the suggestions, I got few calls asking if these type of arrangements are acceptable, so people are using beneficial ownership, 1% ownership etc… tactic as a way to claim principal residence exemption.
This is a rat’s nest.
