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Rental income with co-ownership

My client and her mom own a condo with rental income. My client has her own house and her mom live in the condo with one room being rented out. I think they should both report the rental income and later on report capital gain when the condo is sold because per legal documents they are both owners. But my client insists her mom report all the rental income as she did not have any financial contribution. Can I have your opinions on this situation?

Thanks!

They both need to report rental income according to their share of ownership. your client has to report capital gain later on at the sale of the property as this is her investment property. The mother can claim it as principal home, if less than 50% is on Rent.

Thanks so much for your answer!

I’m not so sure I agree with this answer, but in fairness, it is not clear what you mean when you say that “she (i.e. daughter) did not have any financial contribution”. Do you mean that daughter
did not receive any of the rental revenue, or do you mean that daughter did not contribute anything financially to the purchase of the condo. If you meant the latter, since you did say “contribute”, this suggests that daughter is on title for estate planning
purposes only, or for financing approval purposes only (i.e. a bare trustee). If that is what you meant, then mom should claim 100% of rental income, in my opinion.

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Hi Byron, the daughter neither contribute anything financially to the purchase of the condo nor receive the rental revenue. She and her mom jointly own the condo per legal documents. Do you have any ITA reference to support your opinion that she does not need to report the income?

Thanks!

I may have had some notes with references in the past, but I’m sorry that I’m too busy to go searching for that. If daughter neither contributed to the purchase of the property or received any rental
income, that suggests to me that she is on title for estate planning purposes only. Daughter is not a beneficial owner, and should not report any income for this. Some day when mother passes away, daughter will be the beneficial owner with ACB = FMV due to
deemed disposition.

This cannot be properly solved here with this partial information without the actual legal documents… Based on the vague assumptions about the legal status, the daughter could have everything to do with it, or nothing to do with it, and may actually never ever be an owner of the condo, even after mothers death.

The client needs to produce ALL of the legal documentation, and ALL of any side contracts. Then that needs to be examined very carefully, together with an examination of “follow the money”.

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@gmao You are not going to find much reference in the ITA because the Act does not defined the term ‘owner’. Although in most cases they are one in the same, a “beneficial owner” of property can be a different person than the “legal owner”.

As bryon & justjoe mention, the legal documents and the actual facts of the situation will determine who is the beneficial owner of the condo. In the absence of a beneficial ownership or trust agreement between the mother & daughter facts such as who contributed toward the purchase of the property, who is responsible for paying the monthly bills, insurance, maintenance etc. Who would have the authority over selling the condo, and if proceeds of a sale were received, who would expect to receive those proceeds (mother, daughter, or split based on ownership percentage). There are a bunch of factors involved in determining ownership.

https://members.videotax.com/technical-interpretations/2014-0550971E5-beneficial-owner-principal-residence

http://www.cch.ca/newsletters/FinancialPlanning/November2009/article3.htm

https://www.allaboutestates.ca/principal-residence-exemption-and-beneficial-ownership-an-update/

https://taxinterpretations.com/cra/severed-letters/2008-0282461e5

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Thanks so much for your explanation and resources enclosed. They are very useful!

Very true.

A Calgary doctor bought a house in the names of his two university student sons. When this house was sold in the 2007-2008 Calgary boom, the two sons were still young university students. This caught the attention of CRA.

The father, who was the only big income earner, was deemed to be the beneficial owner and assessed Capital Gains tax. In fact the father paid the down payment, guaranteed the mortgage, and made all the mortgage payments. This was considered to be more relevant than the fact that the property was held in the names of the two sons.

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