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Gifting rental property
September 1, 2021
3:46 am
Kidd
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Someone i know has a few rental properties. His kids are grown adults now, living in houses of their own.

Can this someone "gift" his rental properties to his kids, thus avoiding any tax implications, like capital gains, land transfer etc?

September 1, 2021
4:10 am
Loonie
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Land transfer tax is a provincial matter, so it will depend on local provincial law.

September 1, 2021
5:37 am
Bill
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Far as I know there'll be capital gains tax to pay on the change of ownership to other adults. I'm sure your friend wouldn't want wealthy people to be able to transfer income-earning, valuable assets to their kids with no tax consequences, transferring inter-generational wealth in that way, no?

September 1, 2021
6:07 am
canadian.100
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Kidd said
Someone i know has a few rental properties. His kids are grown adults now, living in houses of their own.

Can this someone "gift" his rental properties to his kids, thus avoiding any tax implications, like capital gains, land transfer etc?  

The father making the gift would likely incur Capital Gains tax because the investment properties transfer to the kids @ current market value. The father is deemed to have disposed of the properties even if no consideration received. Depreciation may also be recaptured and be taxable to the father. One must be careful when executing non-arms length transactions. Get professional legal/accounting advice for this type of transaction.

September 1, 2021
9:06 am
Bill
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To add to canadian.100's advice, here's the link to CRA's capital gains tax guide (which includes within it a link to the document dealing with non-arm's length transactions):

https://www.canada.ca/content/dam/cra-arc/formspubs/pub/t4037/t4037-20e.pdf

Depending on your friend's background/knowledge, if (s)he is willing to read the relevant sections it can help limit (or eliminate) the amount of pro advice needed, i.e. need to pay only for what you already don't know.

September 1, 2021
1:10 pm
Loonie
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I would agree with canadian100 about getting professional advice. With so many properties, it will be less cost per property for the advice. And then I would follow it.

Someone like this clearly wants to avoid taxes, and that is precisely the kind of person who needs the advice lest he fall victim to his own ideas.

Based on some previous experience, I'd say he will probably need to have them all professsionally appraised. CRA is familiar with the desire to undervaue such properties.

September 1, 2021
1:17 pm
COIN
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September 1, 2021
3:28 pm
Bill
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COIN, appears not to be a problem, the document at your link indicates "If instead you gift assets to an adult child.............there is no attribution on any type of income." The chart indicates the same. That's the situation the OP posited.

September 1, 2021
6:21 pm
BillieBob
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Bill said
COIN, appears not to be a problem, the document at your link indicates "If instead you gift assets to an adult child.............there is no attribution on any type of income." The chart indicates the same. That's the situation the OP posited.  

No attribution perhaps but capital gains or losses will apply. From the same link: “If you gift or transfer property to any other family member, with the exception of your spouse, you will generally realize a disposition at fair market value resulting in a capital gain or capital loss on the date of the transfer. You will need to report this gain or loss on your tax return.”

September 1, 2021
6:49 pm
COIN
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BillieBob said

No attribution perhaps but capital gains or losses will apply. From the same link: “If you gift or transfer property to any other family member, with the exception of your spouse, you will generally realize a disposition at fair market value resulting in a capital gain or capital loss on the date of the transfer. You will need to report this gain or loss on your tax return.”  

It gets a bit more complicated. If the rental property is a depreciable property then there could be a recapture of previously claimed C.C.A. or there could be a terminal loss which may or may not be tax deductible. I defer to the tax accountants/lawyers on tax issues (I know just enough to be dangerous).

September 1, 2021
7:04 pm
Bill
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Not really complicated by fact it's gifted to adult child, i.e. father is deemed to have sold it at fair market value to adult child, so it's the exact same tax implications as any rental property owner selling at arm's length at fmv.

September 1, 2021
7:36 pm
AltaRed
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+1 There is no difference from a taxation perspective whether arms length or not. The property is taxed at 'fair market value'.

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