Real Estate

Having Rental Property in Kid's name (under 18)

  • Last Updated:
  • Aug 14th, 2019 11:19 am
[OP]
Newbie
May 21, 2019
14 posts
4 upvotes

Having Rental Property in Kid's name (under 18)

With the increases in property value, has anyone considered putting the property in a minor's name?

Yes, the rental net income will be attributed back to the parents for tax purposes but the capital gain will be taxed in kid's name. Something worth considering? Thoughts?
5 replies
Sr. Member
Dec 4, 2004
567 posts
271 upvotes
GTA
Attribution rules apply to the capital gains as well, so any capital gains would be taxed in your name, not your child's. See Section 74.1(2) of the Income Tax Act.
Jr. Member
Nov 26, 2012
106 posts
76 upvotes
Toronto
Off the top of my head, you would have to setup a trust as minors can't enter contracts. The risk with trusts is that a) you can't take back the funds if you need it later b) when the child is 18, the assets in the trust are solely their property (even if they don't get access to the trust until a later age, etc). You likely won't be able to get financing or heloc. There are legal and accounting costs for a trust - you need experienced people to do it, reducing the tax savings. Your child won't be able to claim the first time home buyer refunds (if any) as most require buyer to be 18 and they won't qualify later when they buy as an adult as they own property already.

All in all, depending on your family goals, it may or may not make sense. But as a pure tax avoidance method, it's not that good, Hence, it's not that commonly used.
[OP]
Newbie
May 21, 2019
14 posts
4 upvotes
_dc_ wrote:
Aug 14th, 2019 10:44 am
Attribution rules apply to the capital gains as well, so any capital gains would be taxed in your name, not your child's. See Section 74.1(2) of the Income Tax Act.
Seems like if I "loan the money" to my child at market rate (say prime rate), then the capital gains would not be attributed to the parent. See below blurb I found online

http://www.mondaq.com/canada/x/675958/C ... yers+Guide


Exceptions and Exclusions
Section 74.5 provides for various exceptions to the attribution rules in sections 74.1 and 74.2.

If an individual transferred a property to a spouse or a related minor, the attribution rules don't apply if

- the individual received fair-market-value consideration in exchange for the property;
- where the consideration was a debt, the individual received a market-rate interest payment within 30-days after the end of both the year in which the transfer occurred and each subsequent year; and
- where the individual transferred the property to a spouse, the individual elected out of subsection 73(1)'s spousal-rollover rule. Moreover, an individual running a business and paying wages to a spouse or a related minor will not trigger the attribution rules.
Likewise, if an individual lent property to a spouse or a related minor, the attribution rules don't apply if that individual received a market-rate interest payment within 30-days after the end of both the year in which the loan occurred and each subsequent year.

In addition, the attribution rules don't apply when parties divorce or dissolve a common-law relationship. Yet couples not yet divorced but living apart due to marriage breakdown are still subject to the capital-gain attribution rule unless they jointly elect otherwise.

Furthermore, the attribution rules simply exclude certain sorts of income. Some examples include:

- income earned from the child tax benefit under section 122.61
- business income
- second-generation investment income or income from re-invested income (e.g., income from reinvested dividends paid on transferred shares (Not to be confused with reinvested capital gains, which result in "substituted property.")
- capital gains (and losses) when a related minor disposes of property that you initially transferred to the minor
Newbie
May 22, 2019
22 posts
12 upvotes
i have a lot of friends nearby doing this. I would encourage you to do this.

It is a great way to help to attack the housing supply. In fact if everyone house owner can do like this, it is a great way to defeat government's evil effort to increase housing supply.
[OP]
Newbie
May 21, 2019
14 posts
4 upvotes
ilovetoyota wrote:
Aug 14th, 2019 11:15 am
i have a lot of friends nearby doing this. I would encourage you to do this.

It is a great way to help to attack the housing supply. In fact if everyone house owner can do like this, it is a great way to defeat government's evil effort to increase housing supply.
Not sure if you're being sarcastic or not haha Smiling Face With Open Mouth

I just want to find a tax efficient way to reduce my taxes while following the rules.

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