Selling home(s), getting married, and avoiding Capital Gains...

[Byrns]

Hi, I was wondering if someone could offer some advice to my current situation...

I'm getting married this July, and we'll be buying our new house off a family member in June. We both currently own property and her parents are living in her house. She has a small house, and I have a condo. The plan is to move her parents into my condo, and to sell her house in order to buy the new place. (Her house is in a dodgy part of town)

What we're thinking of doing is transferring the title of my condo to her parents. In effect "selling" it to them since the condo is currently my primary residence. We then will get a new mortgage under her parents names and co-sign for them. Is it possible to do this? Would\Could\Should we have to cash out the condo? The condo then becomes her parents primary residence.

Does anyone have any advice for my situation? I currently have 2 years remaining on my closed mortage (4.39%) and my condo's value, being in Calgary, has doubled from when I bought it. I would like to keep the tax-man's hands far away as possible.

Also, to be safe we plan on drafting an agreement that although the house is in her parents names it still belongs to us or will be given to us when they no longer want to live there. (ie need to move into a nursing home or some other place)

Thanks!

[setell]

Ok... I'll try to answer some of your questions. I'll start off with what I know is going to be true. If you transfer ownership of the condo to your fiancee's parents it means you've sold it to them at say fair market value and you'll have a capital gain. But if it's your principal residence then you won't have to pay taxes on it. If later on you and your fiancee get married and her parents don't want to live in your condo anymore they can't just "gift" the house to you. Gift's are taxable too! It will be treated as a sale (again) and since her parents are living in the house they can claim it as their principal residence and not pay taxes on the gains from the sale of the condo. I am not sure how the legal agreement will come into play or any transactions where there might not be any real money flow (sorry don't know enough about taxes to answer that part of your question).

I would suggest that you go ahead and sell your fiancee's house and keep your condo in your own name. If she sells it and claims it's her principal residence then she won't have to pay any capital gains. You don't need to transfer ownership just so that you can have it back later on for your condo. Besides I'm sure you can get a mortgage if you and your fiancee let the bank know that between the two of you there is two properties.

Hopefully there are other RFD'ers that can you help with this as i'm still a amateur and your attempt at trying to sell a house without a capital gain happen to be one of my assignment questions for my tax class:cheesygri

[grant]

Would\Could\Should we have to cash out the condo?
What do you mean by "cash out the condo"? If you don't intend to sell it how are you "cashing out"?

Gift's are taxable too!
Not in Canada.

I was wondering if someone could offer some advice to my current situation...
If both properties have been owner-occupied by you folks the entire time you've owned them, then the arrangement you seek can be made without incurring capital gains.

However, your desire to retain control of the condo can muddy the waters somewhat. You need to speak to an experienced accountant who will tell you how you can do that while still sheltering it from future capital gains.

some talking points:

1) your inlaws can assume your current mortgage in alberta
2) you can either gift your inlaws the balance of the purchase price, or you can hold a 2nd mortgage with no interest. The latter option will cost a few bucks to register & offers some legal protection.
3) You may wish to retain 1% ownership in the property to ensure it cannot be sold without your consent. I don't know how this plays into capital gains exemption.

[grant]

I would suggest that you go ahead and sell your fiancee's house and keep your condo in your own name.
I believe the reason he wants to sell his condo is so & his fiance can enjoy principal residence exemption on the home they are buying together.

If he owns both the condo & his marriage home, only 1 will remain exempt.

[Byrns]

I believe the reason he wants to sell his condo is so & his fiance can enjoy principal residence exemption on the home they are buying together.

If he owns both the condo & his marriage home, only 1 will remain exempt.

Exactly. I would like to sell the condo on paper to her parents, and my wife and I will live in the new home we're buying. Her parents currently do not live in my condo.

I'm looking for a way to shelter myself from any future capital gains if for some reason I need to sell the condo that her parents are moving into. (which I already own in my name only) I'd rather not transfer the title to them, but thats the only way I figure on being able to shelter myself from the taxes.

[setell]

Exactly. I would like to sell the condo on paper to her parents, and my wife and I will live in the new home we're buying. Her parents currently do not live in my condo.

I'm looking for a way to shelter myself from any future capital gains if for some reason I need to sell the condo that her parents are moving into. (which I already own in my name only) I'd rather not transfer the title to them, but thats the only way I figure on being able to shelter myself from the taxes.

um one question, are you sure your in-laws will be willingly "give" you back your condo in say 5/10/15 years? Not to ahh sound very pessimistic but what if the marriage doesn't work out or something happens?

[Byrns]

um one question, are you sure your in-laws will be willingly "give" you back your condo in say 5/10/15 years? Not to ahh sound very pessimistic but what if the marriage doesn't work out or something happens?

Well I'm fairly certain they would, but they have said that they would sign (legal) documents saying that the condo would come back to us\me, and the would also include that it in their Will.

[grant]

Well I'm fairly certain they would, but they have said that they would sign (legal) documents saying that the condo would come back to us\me, and the would also include that it in their Will.
Another reason you should remain on title... so the condo can be transferred to you without going through probate... I believe the term is "joint tenants in common"?

[DSTU]

Hi, I was wondering if someone could offer some advice to my current situation...

I'm getting married this July, and we'll be buying our new house off a family member in June. We both currently own property and her parents are living in her house. She has a small house, and I have a condo. The plan is to move her parents into my condo, and to sell her house in order to buy the new place. (Her house is in a dodgy part of town)

What we're thinking of doing is transferring the title of my condo to her parents. In effect "selling" it to them since the condo is currently my primary residence. We then will get a new mortgage under her parents names and co-sign for them. Is it possible to do this? Would\Could\Should we have to cash out the condo? The condo then becomes her parents primary residence.

Does anyone have any advice for my situation? I currently have 2 years remaining on my closed mortage (4.39%) and my condo's value, being in Calgary, has doubled from when I bought it. I would like to keep the tax-man's hands far away as possible.

Also, to be safe we plan on drafting an agreement that although the house is in her parents names it still belongs to us or will be given to us when they no longer want to live there. (ie need to move into a nursing home or some other place)

Thanks!

My Advice - seek professional advice.

[Krox]

Another reason you should remain on title... so the condo can be transferred to you without going through probate... I believe the term is "joint tenants in common"?

If he is still on the title then he still owns the property and must pay some tax on it when he sells. You cannot really have it both ways. You cannot claim you do not own the house for tax purposes yet at the same time claim a legal entitlement to it. That is why you have to trust your in-laws b/c you would not be able to sue them to get the property back b/c you would be admitting that you were comitting tax fraud.

You also have to think of the mortgage. The bank is going to want to know everyone who has a claim to the property plus you will be signing documents to that affect.

If you are not married yet you could sell the condo now with no capital gains since it is your primary residence. If you want to wait to sell, then you would only have to pay captial gains on the value of the condo from the time you are married to the time you sell ( not 100% sure on this).

But like DSTU said get some professional advice. What you are proposing could have some serious legal ramifications if Revenue Canada decides to look into this deal. It will be up to you to prove that this deal is on the level and not just some scheme to avoid paying taxes.

[grant]

If he is still on the title then he still owns the property and must pay some tax on it when he sells. You cannot really have it both ways. You cannot claim you do not own the house for tax purposes yet at the same time claim a legal entitlement to it.
You can actually... according to accounting advice i've received.

If you are a practicing tax accountant and believe otherwise, I would be interested in hearing more.

if you are not a tax accountant, then our untrained opinions may as well be equal and we should leave it up to the OP to decide whether to abandon his plan based on your opinion.

You also have to think of the mortgage. The bank is going to want to know everyone who has a claim to the property plus you will be signing documents to that affect.
If the OP + inlaws are cooperating, why would that even be an issue? if the inlaws refuse to allow a new mortgage registration, that only leads towards them losing their home...

But like DSTU said get some professional advice. What you are proposing could have some serious legal ramifications if Revenue Canada decides to look into this deal. It will be up to you to prove that this deal is on the level and not just some scheme to avoid paying taxes.
It *IS* just a scheme to avoid paying taxes. However the courts have upheld the principal that a taxpayer may arrange his affairs in any legal matter to reduce taxes payable.

I also agree that he needs a tax accountant to guide him through the process. To go forward without help would be absolute folly.

[Krox]

I am definitely not a tax accountant, so my advice is exactly worth the paper it is written on.

My point is that there is a lot to consider and when dealing with rev can it is always best to seek professional advice. I realize this is a scheme to avoid paying taxes and if the OP can do this legally, then all the power to him. However, if you don't have the proper documentation in place it could be considered tax evasion which is not something you want to be dealing with.

[Byrns]

I've spoken to the company tax accountant about this and he suggested a couple things that were mentioned so far.

1) I could remain a part owner of the property ie.) 1% ownership

and\or

2) I could write up a loan agreement for the value of the property that my in-laws would sign. Then if they tried to sell behind my back I would be covered at least partially. Also, they would ammend their Will so that I would receive it upon their deaths.

Now I'm wondering if the bank will allow me to transfer the title 100% to her parents, but still be able co-sign or add them to the current mortgage. (they have no income as they're recent immigrants)

I'll still go see professionals, but I'm looking for ideas and scenarios.

[scoop]

Maybe Im incorrect, but if you sell your condo in a couple years, do you not only have to pay capital gains on the increase of value from the date it is no longer your principle residence.

So if you bought the condo for $200,000 3 years ago, assume market value is $300,000 now, and you sell it in 3 years for $400,000. Wouldnt you only have to pay capital gains on $100,000 - from $300,000 to $400,000 in value? If so and you think the value will keep going up quickly, why not just hang on to it and treat it as an investment. Rental property to your inlaws and you can now write off the interest on the mortgage.

[grant]

So if you bought the condo for $200,000 3 years ago, assume market value is $300,000 now, and you sell it in 3 years for $400,000. Wouldnt you only have to pay capital gains on $100,000 - from $300,000 to $400,000 in value? If so and you think the value will keep going up quickly, why not just hang on to it and treat it as an investment. Rental property to your inlaws and you can now write off the interest on the mortgage.
You are correct about the gains.

The OP implies he will not charge his in-laws rent. (i.e., they will live there for free).

If he is renting a property at below-market (or zero) rates to a relative, it is not an investment and thus he cannot claim expenses.

[scoop]

You are correct about the gains.

The OP implies he will not charge his in-laws rent. (i.e., they will live there for free).

If he is renting a property at below-market (or zero) rates to a relative, it is not an investment and thus he cannot claim expenses.
Gotcha on the rent. Sounds like the OP is concerned about losing this investment though, and doesnt need the money from the sale. So if he only has to pay capital gains on the property from the day its not his principal residence, might be worth it to hang on to it regardless then, as the Calgary real estate market is one of the better investments out there.

[grant]

Gotcha on the rent. Sounds like the OP is concerned about losing this investment though, and doesnt need the money from the sale. So if he only has to pay capital gains on the property from the day its not his principal residence, might be worth it to hang on to it regardless then, as the Calgary real estate market is one of the better investments out there.
He is keeping it... he just wants to use his inlaws exemption to save future capital gains taxes...