It can be challenging to decide whether to give your house to your children or sell it, involving emotional and financial considerations. While the emotional benefits of gifting your property during your lifetime can be significant, there are also important tax implications you must understand before moving forward.
This blog will break down key considerations, including tax considerations, to help you make an informed decision.
Why Would You Give Your Kids Your House?
As a parent, you may have any number of reasons why you want to gift your house to your kids. However, there’s a good chance your motivators are related to one of two (or both) things: emotions and money.
Giving your home to your children while still alive has many emotional advantages. Leaving a legacy, knowing that you’ve helped them significantly, and watching them thrive can create a deep sense of fulfillment. However, realizing there’s no “one-size-fits-all” approach is essential. The decision should be based on your financial situation and children’s needs. Consulting with legal, tax, and financial professionals is crucial to understanding your best options.
However, there are downsides, such as the potential impact on retirement funds. If the proceeds from selling your house were part of your future financial plan, giving the house to your kids could disrupt your long-term strategy. Again, professional advice is essential to evaluate your financial standing before deciding to gift property.
What Are the Tax Implications of Gifting Your Home?
Transferring a home involves tax implications for both you (the donor) and your children (the recipients). Here’s a breakdown of the primary taxes to consider in Ontario:
1. Capital Gains Tax for the Donor
- Primary Residence Exemption (PRE): If the house you’re gifting has been your primary residence for every year you’ve owned it, you can benefit from it. This allows you to avoid paying capital gains tax on the appreciation of the property.
- Capital Gains on Non-Primary Residences: If the home is not your primary residence (e.g., a rental property or cottage), you’ll face capital gains tax. The tax is calculated based on the property’s current market value and original purchase price.
Example: If the house was bought for $300,000 and is now worth $1,000,000, you’ll have a capital gain of $700,000. Tax will apply to 50% of this gain, or $350,000, which is taxable at your marginal rate.
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2. Land Transfer Tax for the Recipient
When you transfer ownership of the house, your children will generally be responsible for land transfer tax, calculated based on the home’s fair market value at the transfer time.
Ontario Land Transfer Tax Rates
As of 2025, here’s what your kids could expect to pay on LTTs:
- 0.5% on the first $55,000
- 1.0% on the next $195,000
- 1.5% on the next $150,000
- 2.0% on amounts over $400,000
Example: For a $1,000,000 property, land transfer tax could total $16,475. Note: In Toronto, this tax is doubled due to Toronto’s municipal land transfer tax.
If your children are first-time homebuyers, they may qualify for a land transfer tax rebate, potentially reducing or eliminating the tax, provided they plan to live in the property.
3. No Gift Tax in Canada
Canada does not have a gift tax, meaning you won’t pay taxes simply for giving your home to your kids instead of selling it. However, the Canada Revenue Agency (CRA) treats the property transfer as a deemed disposition, meaning it’s considered a sale at fair market value for tax purposes. This could trigger capital gains taxes, depending on the property’s appreciation.
4. Property Taxes and Ongoing Costs
After the transfer, your children will be responsible for annual property taxes based on the home’s assessed value. Depending on the property’s location and market value, this could be a significant ongoing expense.
Can it Impact Your Estate?
Gifting your house can also affect your estate plan, especially if you have other heirs. If one child receives the property, it could be seen as an unequal distribution of assets, leading to potential disputes or tax consequences when your will is executed. It’s important to discuss this with your estate planner to avoid future issues.
Considerations for Adding Your Kids as Joint Tenants
Some homeowners may consider adding their children as joint tenants on the property title to avoid paying taxes. While joint tenancy provides the right of survivorship, meaning ownership passes tax-free to the surviving tenant upon death, this strategy isn’t without its risks.
Joint tenancy can be beneficial in avoiding probate taxes, but it is not tax-free if the property wasn’t the primary residence for the entire time. Additionally, the transaction is treated as a gift, and capital gains tax could apply. Before pursuing this route, consult a real estate lawyer and tax expert.
Example: The Importance of Joint Tenancy in a Real-Life Situation
I once worked with a terminally ill retiree who wanted to transition to an assisted living apartment. She hired me to list her house; her son, the Power of Attorney (POA) and sole beneficiary, was involved. However, her health rapidly declined, and her son needed to step in to finalize the sale of the house. We added him as a joint tenant to ensure the sale went smoothly. This move allowed us to avoid probate and ensure the property was transferred without delay after her passing, keeping everything on track for a timely closing.
Wondering if Scarborough is the right place to spend your next chapter? Explore these related blog posts.
- Is Scarborough Good For Seniors?
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Zooming Out
Pros of Gifting:
- Emotional fulfillment from seeing your children benefit while you’re still alive.
- Potentially reduce future estate complications.
Cons of Gifting:
- Capital gains taxes on non-primary residences.
- Land transfer tax for your children.
- Disrupting your retirement strategy by losing the home sale proceeds.
Before making any decisions, it’s crucial to consult with tax professionals, estate planners, and real estate lawyers to ensure the transfer is structured to minimize tax liabilities and align with your financial goals.
Work With a Senior Real Estate Specialist
Giving your home to your kids can be emotionally rewarding, but it requires careful consideration of the tax implications and your long-term financial needs. Whether you give the property to your kids or sell it, a professional advisor with a Senior Real Estate Specialist (SRES) designation will better serve you to navigate the complexities of such a significant transition.
Having someone with specialized expertise will provide value to your unique situation, and getting expert guidance will help you make the best decision for you and your family.
As a Senior Real Estate Specialist I am here to support you in any way you need. Reach out to 647.283.2127 or email stuart@stuartnodell.com to start a conversation.
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