This blog post was written by: Rebecca Tong, Senior Manager, Scotiatrust Tax Services, Vancouver

Ever thought about gifting a property to your children? As most parents would think – yes why not and what is the big deal?  I recently had this very discussion with my own aging parents,  and this resulted in some important discussions about our family home, their goals and consideration for the tax outcomes of any decisions made,

Key Consideration and Implications:

Tax Consequences

Although there is no gift tax in Canada, capital gains may still apply for the person gifting the house. The Canada Revenue Agency (CRA) considers this a disposition when you gift your property to your child. This means that the property gifted is treated as if it was sold for fair market value proceeds just like if you were selling it to a stranger. If the property is your principal residence, then the capital gain may be fully exempt if the home was your principal residence the whole time you owned the property. If you ever rented it, or used your property for business purposes, then there may be a portion of capital gains that are taxable. Only one property can be designated as a principal residence for each family unit, for purposes of the capital gains exemption so if you own multiple properties then this is  an important consideration to consult with a professional about. Obtaining a property appraisal to determine the property’s fair market value will ensure a more accurate valuation for purposes of quantifying any appreciation in the value of the home, so that any capital gain or loss is known in advance of you selling or gifting the property.

Ongoing Costs

Are your children going to be able to afford ongoing maintenance costs? Legal fees? Land Transfer Tax? Property taxes? Are they responsible enough to upkeep the property? Future income/capital gains when they decide to sell the home?

Whether your child uses the property as their principal residence or an investment property will determine if the property may be subject to any future capital gains  tax.

As there are many costs and responsibilities when  owning a property, there needs to be more thought and consideration of your children’s personal finances and if they can manage these ongoing costs.

Loss of Ownership

Once the property has been gifted to your children, you no longer have legal ownership which may not align with your goals. What if your children wanted to renovate  the entire house? Is there an attachment to maintaining the house that you may not want the children to touch or do with the family home? This may go against your original wishes for the property.

Multiple Children

If you are gifting your family home to one child but you have multiple children, this might result in conflict. Your other children may see this as unequal treatment which can lead to resentment and other challenges within the family. You may need to consider equalizing with the other children or simply selling the home to an arm’s length party.

Consider Alternatives

• Gifting cash or securities for your children to buy property may be more tax-efficient overall.
• Use a will to leave the property as an inheritance at death.
• Create a trust to pass on the property which can avoid any probate fees (dependent on the province) upon death.
• Consult professionals such as a lawyer or an accountant who can speak specifically to your own personal situation and provide tax and legal advice

Family gifting is a very personal choice  often requiring all types of considerations from financial and non-financial goals. It all boils down to your own long term personal goals and preferences on why you might want to gift property while you are alive versus when you die. Parent A wants to see their kids enjoy their family home while they are alive versus Parent B who wants to be tax efficient and leave the maximum amount of inheritance to their children at the end of their life. The uniqueness of family dynamics is what makes estates and trusts so personal to each individual and in the end no one family has the same goals or motives.