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Brian Madigan LL.B., Broker
BRMadigan@Rogers.com

RE/MAX West Realty Inc.,
Brokerage
Independently owned and operated

96 Rexdale Blvd. 
Toronto, Ontario 


Phone: 416-745-2300

Cell: 647-404-8150 
Toll Free: 1-888-507-0817

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Utilizing a Parent to Avoid Capital Gains Tax

May 9, 2019 - Updated: May 9, 2019

 

Utilizing a Parent to Avoid Capital Gains Tax
 

As parents become elderly, it’s important to realize that they should continue to retain ownership of their property.
 

Oftentimes, it’s thought that simply transferring it directly to the kids or selling it, is the best solution. It may not be.
 

There are quite a few people living to 100 years of age these days. Let’s assume Bob and Mary have owned a cottage in Muskoka and a house in the city for decades. Bob passes away, and the question of ownership of the Muskoka cottage arises. Mary is available to hold title alone, and that can be her principal residence. She is only entitled to protect one property for tax purposes and this is it.
 

Transferring the title to the children will not permit them to shelter this property from capital gains, assuming, of course, that they are already owners of other properties, or their spouses are owners.
 

The simple step here is to appreciate that Mary could easily live to 100 years of age, and that any future gain on this property would be exempt, however, it would have to be designated as a principal residence.
 

The capital gain can be deferred until Mary’s death, then, it must be taken into income in the year of her death.
 

Capital gains taxes could be quite substantial. Let’s assume that over the years there is an accumulated gain on the property of $1 million. The taxable capital gain would be $500,000.00, and the tax payable, roughly one half of that or $250,000.00.
 

Let’s assume that Mary has no income other than Old Age Security. She would receive $7,200.00 in income each year. If that’s her only income, she pays no income tax. If in the year of her death, she suddenly must report a gain of $500,000, her marginal rate of tax will be about 50%. So, in addition to the tax payable on the cottage, her estate would also be paying $3,600.00 income tax on her Old Age Security.
 

Mary’s longevity provides a great investment and tax avoidance opportunity for her children.

 

In order to avoid the unfortunate result, all that is necessary is a little planning. Get some legal and estate planning advice!

 

Brian Madigan LL.B., Broker

www.iSourceRealEstate.com


Tagged with: cottage real estate capital gains tax principal residence exemption ontario law
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Brian Madigan LL.B. Broker

RE/MAX West Realty Inc. Brokerage

Independently owned and operated

96 Rexdale Blvd. , Toronto Ontario,

Phone: 416-745-2300

BRMadigan@Rogers.com

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