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One Dollar Transfers

Those lucky ones who have more than one property are often looking for ways of transferring some of them to the next generation at no cost and no tax consequences. Whether to children or grandchildren (or anyone else for that matter), no one wants to be hit with additional financial burden on the property that has been in the family for years. You may have heard about transfers for one dollar which allow to simply pass the title to the property to family members. You hire a lawyer, draft a transfer agreement at the nominal value, sign, receive $1 from your children and the deal is done. This works from the legal standpoint. Unfortunately, Canada Revenue Agency (CRA) has different view on the matter, to the chagrin of property owners.

 

When you decide to transfer your property to any family member other than your spouse, you are considered to be selling such property at fair market value. Since most of real estate in our area will sell for more than $1, CRA will simply calculate the selling price as the difference between appraised value and that $1. The gain will be considered to be capital, therefore 50% of it will be added to your income and taxed at your marginal tax rate. If the property is held in more than one name, the capital gain will be spread between all owners proportionally.

This unfortunately is not the end of the bad news. Not only the seller will be assessed capital gain on the transfer of property, but also the buyer will be left with $1 cost of the property, since the transfer document will still show the nominal value as transfer cost. When the new owner sells the property, he or she will again have to deal with substantial capital gain, resulting in double taxation. Only if such property is a principal residence to the new owner, there will be no further tax on the subsequent sale.

Although you cannot avoid capital gain on the transfer, you can at least eliminate double taxation of your children or grandchildren. If you consider transfer of your property to be a gift of love, then your children will have a new cost of the property, as per assessed value on the transfer. Eventually, when the new owner sells that property (assuming not a principal residence), he or she will only pay the tax on the difference between the selling price and the cost of transfer, on which you as a parent or grandparent already paid tax.

The other solution is to leave the property in your name and eventually have it taxed in the estate. However, since at death all assets are considered to be sold at fair market value, you may end up paying tax at a higher rate. This of course will depend on the value of your estate and type of assets you have.