Posted at 5:00 a.m.
Giving her home to her child
The scenario
Jean-Guy and Murielle live with their son Philippe, who earns minimum wage. They plan to transfer the house to him mortgage-free right now, because they want to live with their son as long as possible and Philippe will eventually take care of them. The second son will have financial compensation upon the death of the second parent.
“Even before the pandemic, this question came up regularly: “Do I have an interest in transferring my house right away?” People think that if they wait until death, there will be tax to pay,” observes notary François Bernier, director of tax and estate planning for Eastern Canada at Sun Life Global Investments.
“From a pure tax point of view, when we talk about tax laws, there is no incentive to give or sell your real estate during your lifetime to your children,” continues François Bernier.
Whether the parents donate the house, sell it to a stranger, or bequeath it upon their death, the same goes for the capital gain realized on the appreciation in value of the house. There is no tax to pay, because it is the principal residence.
Patricia Besner, notary and tax specialist, vice-president tax strategies and succession at Desjardins Wealth Management
If the parents remain the owners of the house, but leave it to go to residence and the child continues to live there, the exemption for principal residence still applies.
Loss of tax credits
Notary and tax specialist François Archambault, director of the National Bank’s 1859 Private Wealth Center of Expertise, and his colleague Francis Brault, tax specialist and financial planner, checked all the tax credits for people aged 65 to 70.
By transferring title to a child, parents lose the federal home accessibility credit, says Francis Brault. The maximum is $1250.
Parents could also lose the subsidy for seniors related to an increase in municipal taxes. This subsidy of a maximum of $500, awarded to owners aged 65 and over who have a family income of $54,000 or less, has been in place for 15 years.
As for the provincial credit for home support for seniors and the credit for expenses incurred by a senior to maintain his or her independence, parents do not lose them by becoming tenants.
Do we have the means to give… or to receive?
Apart from the desire to help a child who will take care of the parents in return and to reduce the possible stress of transferring the property on the occasion of the death of the parents, there is no good tax reason to give away one’s house from one’s alive, say the experts consulted by The Press.
“We take it for granted that we are giving away the residence, because we no longer need the building, but do we need its value to finance our cost of living?, raises the notary and tax expert François Archambault. If so, it’s obviously not a good idea to give away your house. »
François Archambault recalls that the main value in the heritage of Quebecers is not RRSPs, but the house. For some, it’s even their retirement plan.
PHOTO MARTIN CHAMBERLAND, ARCHIVES LA PRESSE
Patricia Besner, notary and tax specialist, vice-president tax strategies and succession at Desjardins Wealth Management
It’s nice to have a house as a gift, but the child still has to have the means to pay for taxes, heating, maintenance and major renovations.
Patricia Besner, notary and tax specialist
We have to agree on who will pay them, she warns. The parents or the child clerk in a convenience store?
When harmony goes, everything goes. Notary François Bernier advises to “plan for the worst”. “If I give away the house, will I still have the right to stay there? The gift or sale contract must provide for a right of residence for the person making the donation. »
“If my child decides to throw me out and I haven’t protected my right to live on the property, he would have the right to do so. »
Will the parent have to pay rent to their child? Who will pay for cable and internet? “I have to think about what I want to experience as a donor of property to my child,” warns François Bernier.
To save rent in CHSLDs
The scenario
Nathalie and André prepare a plan so that Juliette, their 88-year-old mother, does not have to pay the full rent in a CHSLD. Juliette will give Nathalie her house and her investments to André during her lifetime.
This strategy is often mentioned by the clients of the specialists consulted by The Press. An ill-advised strategy, they claim. Impoverishing a vulnerable person is not a bright idea.
First of all, who knows the date of his entry into a CHSLD? The senior must be stripped two years prior to entry for the plan to work.
Then, if the eldest gives away her house and she has investments over $2,500, the plan fails. If she gives away all her savings, but receives retirement income from her former employer, the project also fails.
PHOTO FRANÇOIS ROY, LA PRESSE ARCHIVES
François Bernier, Director of Tax and Estate Planning for Eastern Canada at Sun Life Global Investments
In financial planning, we make people accumulate capital to cover their living costs during their lifetime, and then, at the end of their lives, we would strip them of their assets to get a reduction on CHSLD fees? As a notary, I have difficulty with this concept.
Francois Bernier, Sun Life Global Investments
“People do the math, if we do nothing with the cost of rent, we will have nothing left as an inheritance, observes François Archambault. But the person is not dead, she has her needs. It is not because a person can no longer live in their house that they will no longer have a social life and there are costs attached to that. »
“If I impoverish the person and she wants to go to the hairdresser, get dressed, go to a restaurant, see shows, she will have to ask her children for money, he continues. All that to get the lowest rent? »
Equity between children
The scenario
A widower, Daniel wants to give his house to his son Luc, who has chosen a nomadic life with no fixed profession while his sister Ève is a doctor and his brother Stéphane, a dentist. Daniel hasn’t planned an inheritance for Ève and Stéphane, because they don’t need it.
“Of course the parent can decide to give the house to the child who will take care of him or to the one who needs it. It is however a case that it is better to settle during his lifetime, because it will be a dispute after death, ”warns Patricia Besner.
The feeling of injustice is a crucial issue in estate planning, not to be taken lightly.
“If I give only one of the children, will the others be very happy about it? How will I compensate for them? You have to think about it. It can be a subject of significant family conflict, ”underlines François Bernier.
PHOTO MARCO CAMPANOZZI, PRESS ARCHIVES
François Archambault, notary and tax specialist, director of the National Bank’s 1859 Private Wealth Management Center of Expertise
Some parents raise the argument that the child doctor does not need it. But this child has chosen to go to higher education and the parent then decides to favor the one who dragged his feet.
François Archambault, notary and tax specialist, director of the National Bank’s 1859 Private Wealth Management Center of Expertise
François Archambault observes that with inflation, parents no longer want to help during their lifetime. “But the one who dragged his feet, does he have the means to pay the taxes and the upkeep of the house? Maybe it’s not helping this child to give him the house. »
A child who has financial problems could also decide to put a mortgage on the house he received. “Does the parent want that? », asks the notary and tax specialist.
There are three possible options, according to Patricia Besner, and each family must decide on the best option to keep harmony. The child who receives the house is asked to find the sums of money to compensate the others now or at the time of death. If this is not realistic, we accept the fact of having given more to one than to the other. In cases where this is not an option, the house is sold and the sums are divided between the children.
“We help people with taxation, but for this aspect, we are more emotional. »
Give to his daughter who already owns
The scenario
When he died, Roger bequeathed the family home to his wife of the past 50 years, Pauline, 76, who had also paid for this bungalow, bought in 1970, but to whom it did not legally belong… Vestiges of another era. Pauline wants to give the house to her only daughter Sophie, who already has a condo. Will Pauline have to assume the capital gain for the 50 years when only her husband was the owner? What will be Sophie’s main residence?
Even though the patriarchal system has deprived Pauline of her title to own her home, she can still designate it as her primary residence for all the years she has lived there.
“The law says that when the house is transferred to the spouse on the death of the husband, the spouse is deemed to have owned the house since day one, when the husband acquired it,” says Francis Brault, of the National Bank private management 1859.
PHOTO MARTIN TREMBLAY, THE PRESS
Francis Brault, tax expert and financial planner at National Bank’s 1859 Private Wealth Management Center of Expertise
On the other hand, if the parent transfers the property to his child, but the child does not live there, it is not good planning, specifies Patricia Besner, at Desjardins wealth management, because we will no longer be able to designate this house as your principal residence even if the parent continues to live there.
From a tax point of view, I have no advantage in giving my house during my lifetime to my child who already has a main residence, because the child will have to choose which is the main residence. It is better to wait until death or when going to residence.
Francois Bernier, Sun Life Global Investments
If we go ahead with the project, we must determine which property should be qualified as a principal residence.
“We have to find which of the residences has the biggest capital gain per year and designate it as the principal residence,” explains François Archambault, of National Bank Private Management 1859.
Sometimes the math gets complicated when the parent moves into a seniors’ residence and the house is sold two years later. “The capital gain began to be taxable in 1972, recalls Patricia Besner. If the residence was acquired before, people have to fill out a form to determine its value in 1972.”
Then we take the sale price, for example $540,000, minus the value established in 1972, say $40,000. A gain of $500,000.
If Pauline has owned the house for 54 years, but only lived there for 52 years, she will qualify for the principal residence exemption for 52 years plus one additional year. The 54e year will not be exempt. She will therefore have to pay 1/54 of $500,000, or $9,259 taxed at 50%, $4,630.
“I have a non-eligible year, but I don’t lose all my years”, emphasizes Patricia Besner.