Although you’re not required to get a formal valuation of the property for tax purposes, you might choose to get one. Canadian Residential Appraiser (CRA) is a designation granted by the Appraisal Institute of Canada. Its website has a tool for finding a local appraiser. You could also consult a realtor or estimate the property value on your own.
The tax implications of giving or selling a property to a child
Given that your son is getting married, Joan, I can appreciate your desire to transfer the property to him. Giving him the condo is a generous gesture, but keep in mind your son could take out a mortgage from a bank to buy the property from you in full or in part, or you could issue a mortgage to him.
For example, if the property’s value is $500,000, he could pay a down payment of as little as $25,000 and borrow the other $475,000 from the bank. Or you might choose to have him pay you $250,000, whether he borrows the funds or not, and give him the other $250,000 of value.
Gifts are not taxable in Canada, but whether your son pays you the property’s full value, a partial value or nothing, the transfer or sale is still deemed to take place at the fair market value. You cannot use an artificially low value to reduce or avoid the capital gains tax.
If your intention is to gift the full value to your son, there could be a benefit to taking back a mortgage for the full fair market value. In other words, you could transfer a $500,000 condo to him and register a $500,000 mortgage at 0% interest. This could provide a degree of family law protection in the event that he and his spouse were to separate or divorce.
Does transferring a property over several years reduce taxes?
As for your question about transferring the property to your son over five years, Joan, the answer is: it depends. This could help to split the capital gain over five years, but it may or may not reduce the amount of tax owing. It really depends on your income and your spouse’s income. In particular, if you are receiving Old Age Security (OAS) and the incremental capital gains income causes your OAS to be clawed back because your income level has risen, it may be better to have a clawback in a single year instead of multiple years. A tax professional may be best to help you determine your approach.
I do not think there is a rent-to-own angle here, Joan. However your son comes to own the condo, the capital gains tax will be the same.
A consideration for other readers who are thinking about buying a home for their children is to possibly have the property purchase take place in their names instead of yours. This will allow them to claim the principal residence exemption without affecting your ability to do so, as well as potentially qualify for GST rebates, land transfer tax refunds and the home buyer’s amount tax credit. There may be situations when buying in your name is preferable, so this needs to be weighed against the potential tax-saving opportunities.
