Train of life | How do I give my house to my daughter?

At 61, Carole * wants to help her daughter gain access to property.

More precisely to his property.

“I am retired and now the grandmother of a grandson. With the price of single-family homes soaring, I would like to give my daughter the family home instead of selling it to strangers, ”she explains.

His daughter is his only child. “My patrimony would go to her anyway. Why wait until death so that it can enjoy it? ”

“Instead of taking a mortgage elsewhere, they would give me rent. It’s like I’m indirectly funding them. It’s not free, but almost. I’m trying to see how I could do it. ”

Without a spouse, Carole has owned the house built in 1976 for 30 years.

“I did repairs anyway, but it’s not up to date. I told them we could modernize it before they came to live there. ”

The renovations, which have not been quantified, would affect the kitchen, the main bathroom, the repair of the floors and the removal of a partition.

“I have the funds to be able to finance them. I had a condo that I sold. The sale of the condo left him with a profit of $ 175,000, “pending investment advice”.

We still have to assess the costs of the work, find a contractor, organize the transfer of property to a notary, she lists.

Her daughter and her partner currently live in one of the three apartments in the triplex that Carole owns in Montreal, for which they pay $ 1,000 a month.

The ground floor apartment, which Carole’s mother occupied until her death, needs to be renovated. For the moment, Carole’s brother occupies it for free. The third tenant pays rent of $ 1,150 per month.

After the sale of her condo last spring, Carole returned to live in her family home on the South Shore.

Retired after 30 years working for the same company, she receives a pension which provides her with $ 2,500 net per month, and which will be coordinated with the RRQ at age 65.

His expenses are $ 1,800 per month. “I am not a person who spends a lot,” she admits.

Carole would relocate to a unit for which the rent of $ 825 has already been agreed.

“Can you help me see clearly in this project and know the impact of my estate and taxes?” ”

The answer

Carole’s intentions are not clear, in the eyes of the notary, tax expert and financial planner Patricia Besner, director at Desjardins Wealth Management.

“Sometimes we talk about donation, sometimes rent, and sometimes paying off a mortgage. These are different situations. ”

With various consequences.

If Carole gives or sells her property to her daughter, there is a transfer of property, with a notarized contract.

If Carole sells the property to her daughter with a deferred or installment payment, “it’s a sale with a sale price balance,” observes the planner.

“If you sell by agreeing not to be paid, it’s the equivalent of a donation. ”

Carole talks about rent paid by her daughter when she moves into the family home.

“If we are talking about rent, I understand that there is no transfer of ownership. It allows you to live in the residence, but you do not go in front of the notary to make a transfer of ownership. ”

But in Carole’s mind, maybe that “rent” was reimbursement for the renovations she would finance, regardless of the transfer of ownership. This work would influence the value of the property. This reimbursement would not be taxable for Carole.

Sale or donation?

But whether the property is sold or given, any transfer of property between related persons is deemed to be made, in the inquisitive eyes of the tax authorities, at fair market value.

In the case of Carole, this value seems to be around $ 480,000, before renovation.

Be careful, warns the notary. Selling at a lower value – say $ 240,000 – would have negative consequences.

“It would penalize his daughter, because her acquisition cost would only be $ 240,000. ”

When his daughter in turn sells the property, the capital gain will be calculated on that $ 240,000, rather than on the actual value of $ 480,000.

“For her part, Carole would have the same fiscal impact. It would still be deemed to have sold for $ 480,000. ”

It is true that both mother and daughter will be able to claim the capital gain exemption for the principal residence in due course.

But on what property?

It’s another mess …

Capital gains exemption

For each tax year, a property or apartment that the owner, his or her spouse, a former spouse or one of their children has occupied at some point in the year can be designated as the principal residence.

However, Carole told us that she sold her condo last spring. For some time, both the family home and the condo were subject to a declaration of primary residence.

“If she claims it for the condo, she will not have the right to completely exempt the gain for the house, when she wants to transfer it,” explains Patricia Besner. For the years when she owned the condo and the family home, she will have to make a choice. ”

The most profitable choice, of course.

However, Carole’s triplex further complicates the situation …

The triplex

“I felt like I was answering an exam,” laughs the advisor, in front of the maze of the situation.

Because a home in Carole’s triplex was inhabited by her daughter, Carole could choose to apply the annual exemption for principal residence to one-third of the triplex, if this decision was beneficial from a tax standpoint.

This exemption only applies to dwellings inhabited by the children of the owner. Carole could not therefore ask for it for the apartments occupied by her mother or her brother.

However, it is very likely that it will be more advantageous to exempt the family residence.

The tax expert recalls that Carole must declare the sale of her condo, which occurred in 2021, in Schedule 3 – Capital gains (or losses). The same goes for the transfer of the family home, if it takes place before the end of the year. The principal residence designation will be made at the federal level in the T2091 (IND) form and at the provincial level in the TP-274 form.

For her part, the planner in her emphasizes that Carole could allow her daughter to live in the family home, with or without costs, and delay the transfer of the property.

By disposing of it now, it is depriving itself of an asset that will gain more value in the future, and which it might one day need. “But that doesn’t seem like a problem in his case, if his cost of living is realistic. ”

The spouse

Carole’s daughter has a spouse – we’ll assume they’re married.

Patricia Besner poses in principle that the transfer of property will be in favor of Carole’s daughter, who will be the sole owner. “This is what I see most often in the context of a donation of a residence by the parent. ”

The two spouses will then have to agree on the sharing of related expenses – maintenance, insurance, property taxes, etc. – to rebalance the contribution of each.

Good news in all this mess: when Carole sells or gives her property to her daughter, there will be no transfer tax to pay. “The parent-child transfer is exempt,” underlines the notary.

It is here that another twist of scenario arises: the donation and the sale of the property do not have the same effect on the family patrimony!

“When the property is donated, it is excluded from the heritage”, informs our advisor.

On the other hand, if Carole’s daughter bought her the house by applying for a traditional mortgage loan, the value of the property could be included in the division of the family patrimony.

“If Carole sells to her daughter and the latter makes repayments over several years, the portion repaid during the marriage will be part of the division of the family patrimony – there are several nuances that we will not go into. ”

Fortunately, there is at least one aspect that turns out to be less complex.

“Carole has no spouse and has only one daughter, which will greatly simplify the will. ”

She will not have to balance the gift of the family home to one of her children with compensatory measures for the others in her will.

* Although the case highlighted in this section is real, the first names used are fictitious.

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