Capital gains on principle residence

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Usermiguel
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Capital gains on principle residence

Post by Usermiguel » 18 Jan 2018 20:31

Hey all. Just looking for some info on a question that I have. Bought my house in 2008 for $700k in Burnaby, BC. Lived in it the entire time with my then gf,now wife. Both my parents and I are on the title. They live in there own house. (Having them on the title was to secure a good mortgage which I paid all myself).

My question is will I now have to pay capital gains if I sell now (not exempt)? Could I just get them to gift or remove their name from the title? If not how much capital gains would I pay if I were to sell for 1.5 mill.

Thanks for any insight.

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Peculiar_Investor
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Re: Capital gains on principle residence

Post by Peculiar_Investor » 18 Jan 2018 21:49

Welcome to FWF.

WIth the caveat that I am not an accountant. There is no gift tax in Canada and attribution on transfers of capital property, i.e. perhaps the down payment, consists only of the income generated, not any capital gains. Since this is your principle residence and you are asking about the capital gain on a potential sale, I don't believe there are taxable capital gains in the circumstances you describe. You might want to review CRA's new reporting rules, Reporting the sale of your principal residence for individuals (other than trusts) - Canada.ca.

See also Jamie Golombek: The dos and don’ts of tax-free gifts in Canada | Financial Post and TaxTips.ca - Gifts and inheritances - When are they taxable?.
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patriot1
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Re: Capital gains on principle residence

Post by patriot1 » 19 Jan 2018 08:37

It's your principal residence but not theirs. If there are any taxable gains they are going to be to your parents when they dispose of their share whatever the method. By all means consult a knowledgeable accountant.

You could have avoided this by getting them to guarantee the mortgage rather than being joint owners, but you will have to deal with the situation as it is.

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Re: Capital gains on principle residence

Post by twa2w » 19 Jan 2018 12:45

No there are no capital gains tax in this case providing the whole property is your principal residence and was not partially rented or used for a business or exceeds the property size limit. Or unless you are in Quebec as they have different rules. Or if your spouse owns another property as a PR. :D



CRA is quite clear on this. The joint owner does not have to reside in the property.

Sole or joint ownership
2.86 For purposes of claiming the principal residence exemption for a property, the section 54 definition of principal residence requires that the taxpayer own the property jointly with another person or otherwise. These words include sole ownership, joint tenancy, tenancy-in-common and co-ownership. Provincial laws are therefore often relevant in determining the ownership of property (including, for example, provincial laws relating to marital property) and should, therefore, be considered along with the comments in this Chapter.

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AltaRed
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Re: Capital gains on principle residence

Post by AltaRed » 19 Jan 2018 13:17

But the parents own and live in a separate property which presumably is their principal residence. To me, the question is more about whether CRA would consider the parents having any beneficial ownership in the joint residence because they are on title in which they then would be exposed to cap gains. But if the OP has evidence the parents contributed nothing to the property, that should be good enough.

I am with Patriot on this one. Joint ownership has many faults and is often used for poor reasons. Maybe the lender insisted on it versus just being a co-guarantor?
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squid
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Re: Capital gains on principle residence

Post by squid » 19 Jan 2018 15:48

If you sell (assuming 50/50 ownership) their status does not impact on your 50% share and there is no tax owed by you. Your parents will pay tax on their 50% share, however. If they gift their 50% to you, it will be a deemed disposition and they will pay tax on the assessed FMV.

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Re: Capital gains on principle residence

Post by twa2w » 22 Jan 2018 04:02

A principal residence status is not divisible due to ownership structure.
If I own a share of a house and it is my principal residence, the whole house is my principle residence.

For example, if my sister and I own two houses jointly, she can live in one and I can live in one. Each house will be 100 % principal residence. When the house she lives in is sold, she will declare it as her principal residence and there will be no tax. Likewise for the house I live in. This is also regardless who paid for the house.

If my parents own the home they live in, they can buy a house for myself and one for my sister and put their names on title with our names. Providing my sister and I live in the houses, all three will qualufy 100% for the principal redidence exemption.

The exveption is if part of the househas a different use ie rental, or exceeds the acreage limit for prin residences.

Quite simple really and CRA is quite clear on this.

If gramma adds your name to her house to avoid probate, it remains her PR and the full PR exemption applies regardless of what property you own.

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Re: Capital gains on principle residence

Post by Usermiguel » 24 Jan 2018 14:23

twa2w wrote:
22 Jan 2018 04:02
A principal residence status is not divisible due to ownership structure.
If I own a share of a house and it is my principal residence, the whole house is my principle residence.

For example, if my sister and I own two houses jointly, she can live in one and I can live in one. Each house will be 100 % principal residence. When the house she lives in is sold, she will declare it as her principal residence and there will be no tax. Likewise for the house I live in. This is also regardless who paid for the house.

If my parents own the home they live in, they can buy a house for myself and one for my sister and put their names on title with our names. Providing my sister and I live in the houses, all three will qualufy 100% for the principal redidence exemption.

The exveption is if part of the househas a different use ie rental, or exceeds the acreage limit for prin residences.

Quite simple really and CRA is quite clear on this.

If gramma adds your name to her house to avoid probate, it remains her PR and the full PR exemption applies regardless of what property you own.

That makes sense thank you!

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Re: Capital gains on principle residence

Post by BRIAN5000 » 24 Jan 2018 14:34

A principal residence status is not divisible due to ownership structure.
If I own a share of a house and it is my principal residence, the whole house is my principle residence.
So hypothetically my daughter and I buy a house she lives in it for three years and it's her PR, I remain in my PR, she contributes 10% to purchase price myself the rest lets just say bought outright. The house increases in value by $300,000 and we sell, its her PR and no taxes? We are both on title.
“Sometimes you are going to sell early and wish you would’ve held on, other times you will hold on a
little bit longer and wish you would’ve sold early - this is just part of the game.” - Frank Zorilla via Abnormal Returns

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AltaRed
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Re: Capital gains on principle residence

Post by AltaRed » 24 Jan 2018 14:44

BRIAN5000 wrote:
24 Jan 2018 14:34
A principal residence status is not divisible due to ownership structure.
If I own a share of a house and it is my principal residence, the whole house is my principle residence.
So hypothetically my daughter and I buy a house she lives in it for three years and it's her PR, I remain in my PR, she contributes 10% to purchase price myself the rest lets just say bought outright. The house increases in value by $300,000 and we sell, its her PR and no taxes? We are both on title.
Same question I have. This is a huge loophole if you can pocket $270k of cap gains (your 90% share of the investment gain) tax free.
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Re: Capital gains on principle residence

Post by Peculiar_Investor » 24 Jan 2018 15:01

I found and scanned through Income Tax Folio S1-F3-C2, Principal Residence - Canada.ca
Canada.ca wrote:In order for a property to qualify for designation as the taxpayer’s principal residence, he or she must own the property. Joint ownership with another person qualifies for this purpose.

The housing unit representing the taxpayer’s principal residence generally must be inhabited by the taxpayer or by his or her spouse or common-law partner, former spouse or common-law partner, or child. A taxpayer can designate only one property as his or her principal residence for a particular tax year. Furthermore, for a tax year that is after the 1981 year, only one property per family unit can be designated as a principal residence.
The meaning of ownership of property is discussed in more detail in section 2.79 - 2.80.

As far as I can tell, there is nothing mentioned about the source of funds to establish ownership.
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patriot1
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Re: Capital gains on principle residence

Post by patriot1 » 24 Jan 2018 15:09

That doesn't add to anything already said. It's OP's principle residence, yes. The question is what is the tax liability, if any, of the parents when they take their name off title.

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Re: Capital gains on principle residence

Post by kcowan » 24 Jan 2018 16:37

Back when MIL was in her final years, we debated putting DW on title. The downsides were DW marriage breakup liability and shared capital gains in which MIL only claimed 50% of the gains after the title change. We did not pursue it because it was just to dodge probate fees. We felt that the capital gain liability outweighed the probate fee savings.

But we never tested it with CRA. I would definitely get an advance ruling.
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