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Rental property income
June 13, 2021
4:01 pm
shadysbrownies
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Hi, I am in Alberta. Can anyone confirm what the rules are for sharing rental income with a spouse? I own a house from before my wife and I got married. I rent it out now, but it would be beneficial if she could claim the rental income. Is it as simple as adding her name to the title? Is that even necessary? And if all we need to do is add her to the title can that be done at a registry or does a lawyer need to be involved? Thanks!

June 13, 2021
11:17 pm
Loonie
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I don't know the answer, but, if you want your wife to inherit the property (should you be first to die), then you should put her on title. Get a lawyer to do it so it's done right. A lawyer will ask you the right questions and knows how to get it done properly so there are no surprises later. A paralegal might be able to do it.
Ownership changes impact other things like insurance, mortgage, property taxes, rental agreement, etc. A lawyer will advise you what you need to take care of when title is changed.

June 14, 2021
9:59 am
RetirEd
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Interesting note: a TV news story on CBC this week - warned that Alberta seems to be one of the provinces with NO regulation or certification of "paralegals." Caveat and all that:

http://www.cbc.ca/news/canada/.....-1.6056320

A rogue "paralegal" took the money (about a grand) for divorce filing, did nothing and left his client still married. No regulation, no recourse without a lawsuit - and finding the guy first. Probably not worth pursuing due to legal costs.
RetirEd

June 14, 2021
5:07 pm
Bill
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Google "adding someone to title alberta" and you'll get the Alberta gov't info about that.

I assume to report rental income for tax purposes you'd need to have an interest (ownership or as lessee) in the property.

June 15, 2021
12:13 pm
Norman1
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If you decide to add her as a joint owner, you will actually be transferring the house from you solely to both you and her. It would be a transfer and not just adding her name.

I think you should see a lawyer to get advice about what kind of joint ownership would be best for splitting up the rental income and for estate reasons.

The few hundred dollars one would save with an unregulated paralegal, who cannot give legal advice, is nothing compared to the damage if the ownership transfer is messed up.

You'll also need to report the deemed "sale" of the house on your tax return next year.

June 15, 2021
1:05 pm
Bill
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CRA publication T4036 Rental Income says "The person who owns the rental property has to report the income or loss. If you are a co-owner of the rental property, your share of the rental income or loss will depend on your share of ownership."

June 15, 2021
1:31 pm
Norman1
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That assumes the co-owners each bought their share.

The income will be attributed back to him if he just transferred a share of the rental property to his spouse without receiving fair market value in return.

June 15, 2021
2:23 pm
lhsaid
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My wife is not in the title of the house and we have been renting our basement (separate unit) for over 10 years. My wife always report the rental income. My understanding is that after one year of living under same roof, my wife owns 50% of the property regardless of the tilte. What CRA doesn't like is having a different person reporting the income each year (read it somewhere in CRA's web side). We're consistent on this one, my wife always report it.
Question: If I die first, are my wife and my kids will have trouble given that my wife is not in the title ?

June 15, 2021
3:52 pm
davidgeorge
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lhsaid said
My wife is not in the title of the house and we have been renting our basement (separate unit) for over 10 years. My wife always report the rental income. My understanding is that after one year of living under same roof, my wife owns 50% of the property regardless of the tilte. What CRA doesn't like is having a different person reporting the income each year (read it somewhere in CRA's web side). We're consistent on this one, my wife always report it.
Question: If I die first, are my wife and my kids will have trouble given that my wife is not in the title ?  

Does your wife report 100% rental income?

If a couple own a rental preperty, can a low income one report 100% rental income, or each one has to report 50% rental income?

June 15, 2021
4:18 pm
Bill
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I see, Norman1. If that's the case then there's no point in adding his wife to title re the rental income issue, especially if it triggers a taxable capital gain on the deemed sale of the property, is there?

Regardless of title spouses have certain rights to the marital home during the marriage (check provincial laws), I wonder if a separate basement apartment never used as part of the spousal residence would be considered to be part of the marital home - ?

Legality notwithstanding, I'm guessing if you're consistent in rental income reporting between spouses CRA does very little checking up on that, and lhsaid's 10+ years experience suggests this too.

I agree with those who suggest getting pro advice on this stuff.

June 15, 2021
5:20 pm
lhsaid
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davidgeorge said

Does your wife report 100% rental income?

If a couple own a rental preperty, can a low income one report 100% rental income, or each one has to report 50% rental income?  

10+ years ago, I went through CRA's how to report rental income and I just kept doing what I learned from there at the time. Yes, my wife always reports 100% and she also signs the receipts. We never had any issues.

June 15, 2021
7:06 pm
Loonie
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In my province, paralegals are regulated members of the Law Society, but I would not use them if they were not.

June 16, 2021
5:21 am
Bill
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lhsaid, it's the CRA T4036 Guide that says "The rental income or loss percentage you report should be the same for each year unless the percentage of your ownership in the property changes."

Aside from what I quoted above saying co-owners share rental income in proportion to their ownership share, Guide also says "....if you own a rental property with your spouse or common-law partner, you are a co-owner." Guide says nothing about who paid for or bought the place.

I'm guessing CRA examiners just follow the Guide's directions, they usually know nothing about the legislation when it's a basic situation like spouses owning rental properties. They do like many folks do these days, just look at the situation and do what seems common sense to them at that moment. Anyway, I'm guessing they rarely review situations involving spouses owning a rental property, and even if they do the beauty of it is you get away with it for years before they reassess maybe 2 years back even if they ever do show up at your door. lhsaid, in your 10+ years have you been audited for this activity?

June 16, 2021
7:19 am
lhsaid
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Bill said
lhsaid, it's the CRA T4036 Guide that says "The rental income or loss percentage you report should be the same for each year unless the percentage of your ownership in the property changes."

Aside from what I quoted above saying co-owners share rental income in proportion to their ownership share, Guide also says "....if you own a rental property with your spouse or common-law partner, you are a co-owner." Guide says nothing about who paid for or bought the place.

I'm guessing CRA examiners just follow the Guide's directions, they usually know nothing about the legislation when it's a basic situation like spouses owning rental properties. They do like many folks do these days, just look at the situation and do what seems common sense to them at that moment. Anyway, I'm guessing they rarely review situations involving spouses owning a rental property, and even if they do the beauty of it is you get away with it for years before they reassess maybe 2 years back even if they ever do show up at your door. lhsaid, in your 10+ years have you been audited for this activity?  

Hi Bill, Thanks for all the details. No, we were never audited by CRA for any issues at all.

June 16, 2021
8:43 am
Norman1
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Bill said
I see, Norman1. If that's the case then there's no point in adding his wife to title re the rental income issue, especially if it triggers a taxable capital gain on the deemed sale of the property, is there?

It needs some thought and planning.

Spousal transfers can be done at original cost. That could take care of any capital gain.

Spousal attribution could be taken care of by a prescribed rate loan.

Regardless of title spouses have certain rights to the marital home during the marriage (check provincial laws), …

Rights and consent are not the same as ownership. With investments, selling a call option on shares is not considered to be selling the shares themselves.

Right to half the equity in the matrimony home on divorce is not the same as 50% ownership of the home. Need to divorce for that right to kick in. That right is to value and not to the home. The right can be satisfied by cash from another source.

In Manitoba, the non-owning spouse gets a life interest, not ownership, when the owning spouse dies.

According to What is a Matrimonial Home…, in Ontario, the right to stay in the home while married is personal against the owning spouse and evaporates when the marriage ends:

The right to continue residing in a matrimonial home as a non-owner spouse is what we refer to as a “personal” right and it is personal against the owner-spouse. The significance of the right being personal is that once spousal status is lost, the right of possession for a non-owners spouse ends. Spousal status is lost when a marriage is annulled, people get divorced or if the owner-spouse dies. …

June 16, 2021
8:50 am
lhsaid
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Norman1 said

Bill said
I see, Norman1. If that's the case then there's no point in adding his wife to title re the rental income issue, especially if it triggers a taxable capital gain on the deemed sale of the property, is there?

It needs some thought and planning.

Spousal transfers can be done at original cost. That could take care of any capital gain.

Spousal attribution could be taken care of by a prescribed rate loan.

Regardless of title spouses have certain rights to the marital home during the marriage (check provincial laws), …

Rights and consent are not the same as ownership. With investments, selling a call option on shares is not considered to be selling the shares themselves.

Right to half the equity in the matrimony home on divorce is not the same as 50% ownership of the home. Need to divorce for that right to kick in. That right is to value and not to the home. The right can be satisfied by cash from another source.

In Manitoba, the non-owning spouse gets a life interest, not ownership, when the owning spouse dies.

According to What is a Matrimonial Home…, in Ontario, the right to stay in the home while married is personal against the owning spouse and evaporates when the marriage ends:

The right to continue residing in a matrimonial home as a non-owner spouse is what we refer to as a “personal” right and it is personal against the owner-spouse. The significance of the right being personal is that once spousal status is lost, the right of possession for a non-owners spouse ends. Spousal status is lost when a marriage is annulled, people get divorced or if the owner-spouse dies. …

  

Norman1, if I understand this, my wife will not be entitled to the house automatically if I die first if she's not listed in the title, right ? what about my kids ?

June 16, 2021
9:05 am
Bill
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Personally, I wouldn't worry about title on matrimonial home if both Wills said surviving spouse is to inherit the home or unless in case of divorce I wanted to stay in the home.

Different for a separate rental property, a little dicier to have a non-owner report rental income, though again how long would it take CRA to notice? CRA has no idea who legally owns a property, they're not generally tied in to land registry systems far as I know (anybody know?), i.e. they seem to rely on the honour system re real estate ownership/dispositions, though they could do a title search if they zeroed in on you for some reason.

June 16, 2021
11:38 am
Bill
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lhsaid, if you have a Will things will go to as the Will directs.

If you die without a Will then there is no "automatically" distribution to anybody of any of your own assets, far as I know. In this case each province has its own rules as to how the estate is to be distributed to married spouse and children, e.g. perhaps something like a flat amount (such as $200K or so) to spouse and then 1/3 of remainder to spouse and 2/3 of remainder to children. Spouse and children have to work out (e.g. sell assets to turn into cash) how to make sure each gets her or his share. Is my understanding.

June 16, 2021
11:40 am
Norman1
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lhsaid said

Norman1, if I understand this, my wife will not be entitled to the house automatically if I die first if she's not listed in the title, right ? what about my kids ?

Unless there is something in the family law or estate law of the province you are in, the answer is no, your wife won't be able to take your death certificate and the marriage certificate to the land title/registry office and take ownership of the house.

If you are thinking about provincial laws covering people who die without a will, keep in mind those are not automatic. Land title/registry office won't take the word of someone claiming to be the surviving spouse and claiming there is no will.

June 16, 2021
1:30 pm
lhsaid
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Reading in mrwills.com"
"When a Married Spouse Dies:
In Ontario, when a married spouse dies without a will, Ontario rules divide their estate. The surviving married spouse receives the first $200,000 of the estate. They share the remainder with the deceased’s children. This amount could be more or less than what is left to the survivor under a valid will. These intestate rules only apply to married spouses. Common law spouses do not automatically inherit in Ontario."

Either way, my wife and my kids will get 100% of my estate regardless of having a will or not. It's only the distribution that could be different, but that's irrelevant to me.

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