Wondering how to transfer property to a family member? It sounds like a simple and good idea, right? It might be a part of your estate planning strategy.
Title transfers in Ontario come with their own set of legal and financial considerations. As a realtor specializing in seniors’ real estate (SRES) I have helped many families navigate this process.
In this blog, I’m going to share what you need to know to make informed decisions. Planning of this magnitude requires thoughtful planning and should be done with advice from legal, financial, and accounting professionals.
Searching for insights about inheritance tax in Canada? Click here to read my blog about it!
Transferring Ownership of Property From Parent to Child – Why Does It Happen?
There are many reasons why someone might want to transfer their property to a family member:
- You’re helping a child get a head start in the real estate market.
- You’re planning the future by estate planning.
- You’re gifting a cottage or a vacation property.
- You want to add a spouse or remove an ex-spouse from the title of your home.
Each of these situations comes with its own steps and consequences, so it’s important to be informed before making any decisions.
How Do I Transfer Property to a Family Member Tax-Free in Canada?
In Canada, property transfers are regulated under the Land Titles Act and may also involve the Family Law Act. It’s critical to understand the implications, especially when it comes to taxation and other legal factors.
Land Transfer Tax
This is a big one and often overlooked. Some family transfers are exempt, such as from spouse to spouse, where no money is changing hands. If you’re gifting the home to a child, you may trigger the tax, even if no money is changing hands. The tax would be based on the FMV (fair market value) and would be payable when your child takes ownership.
If the property is in Toronto, it’s double tax, both municipal and provincial land transfer taxes will be applied. A formal property appraisal may be required to establish the FMV at the time of transfer, which will be used for calculating capital gains and land transfer taxes.
I recently worked with a family where an adult child was being added to the title of their parents’ home as a requirement by the lender. In this circumstance, the provincial land transfer tax was applied. The family had no idea this was the case until they consulted with me, and I referred them to a legal professional to help them understand all the options available to them.
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- Are There Tax Breaks for Senior Home Sellers?
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Capital Gains Tax
This is a CRA matter. Gifting in Canada is not taxable except when the property isn’t your primary residence, such as a cottage, which would be taxed at 50% of all capital gains realized in a tax year. A common example I see is when a cottage is being transferred from a parent to an adult child.
The capital gain owing is usually substantial because the property was never their primary residence and the cottage has been in the family for decades, and the value has increased significantly.
Work with a Lawyer
This isn’t the type of transaction that you do on the back of a napkin. This isn’t a DIY project; it requires the help of a legal professional. Have a real estate lawyer prepare the transfer deed, handle the registration with the Land Registry Office, and advise on whether tax applies. I have seen many try to skip this step, to have to backtrack to correct the avoidable errors that were made.
If you transfer the property to your adult child, it could lead to other legal complications if they are married. The property could become the matrimonial home and could be subject to division unless it’s specified in a marriage contract. Some will place a mortgage on the property for the FMV at 0% interest in the event of divorce to safeguard the asset.
Note: This should always be done on the advice of a legal expert.
Real-Life Example
I was working with an elderly client in her 90s, and she could no longer live in her condo on her own. However, she didn’t want to move to an assisted living facility, and her plan was to age in place. She had her adult daughter move in with her to help provide care.
At the time, her daughter didn’t own any property, was single, and was renting an apartment. As part of her estate planning, she transferred the condo to her daughter, with the understanding that her mother had the right to stay in the condo as long as she could, so long as memory care wasn’t necessary. They had a lawyer do the transfer, and even though no money changed hands, a property appraisal was carried out to determine the land transfer tax that was to apply.
One of the risks in this situation was no longer having ownership of the property. What if a conflict occurs about how the property is being maintained, or what if the daughter had financial issues and wanted to sell the property?
The reason this plan worked so well was based on the strength of their mother and daughter relationship. They considered every scenario and had clear expectations and communication of how they were going to live together.
Thinking about gifting your home as part of a downsize? Explore these related resources.
- 5 Tips For Downsizing Your East GTA Home
- How Do I Find a Real Estate Agent for Seniors in Scarborough?
- Can Downsizing Your Home For Retirement Help Financially?
Consider the Financial Implications
If you currently have a mortgage on your home and want to transfer the property to your adult children, it could mean a couple of things: will they qualify for the existing mortgage? Is the current mortgage transferable? It’s possible that the current mortgage might have to be paid out, and your child might have to get a new mortgage and qualify at today’s rates and criteria.
The home insurance policy would also be affected when transferring your home to your children. If your kids plan on moving into the home, they will need to contact an insurance company to create a new policy.
If you transfer the home to your adult child as a gift, and no money is exchanged, you essentially give all the home’s equity to them. In the event you have a financial hardship in the future or your health changes, you won’t have the ability to sell the home to pay for any future need, such as moving to assisted living.
Work With an Expert
As a SRES (Seniors’ Real Estate Specialist), I have seen how strategic planning leads to amazing outcomes, and when transferring title isn’t well thought out, it leads to frustration for the entire family. Feel free to contact me to have a conversation about all your options as you prepare for your next chapter.
Transferring your home to a family member? I can help! Call 647.283.2127 or email me at stuart@stuartnodell.com to get in touch.
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