Real Estate

Advice on real estate situation

  • Last Updated:
  • Jun 8th, 2021 9:16 am
[OP]
Newbie
Apr 13, 2005
39 posts
6 upvotes
Calgary

Advice on real estate situation

Hi RFD community, hopefully I get some insight here or at least best direction to start with.

My parents bought a place in late 90s for say around 125k when I was a teen. Fast forward 2003 ish they decided to change title to myself and my sister I was still living there they probably put a sale price at 200k. 2006 my sister moves out and 2010 comes along and I buy my own house move out. Parents house probably worth say 420k in 2010. They are listed as renters from oas and likely missing out on grants to fix their house which sucks. But now they are thinking of downsizing. What happens when we sell in terms of tax since I have my own primary residence. Place might be worth about 430 now. Switch house title back to them first for some time? Should I ask an accountant or lawyer for consulting?

Thanks
14 replies
Deal Addict
Jun 26, 2019
1168 posts
883 upvotes
If you are declaring your current house for the past 10 years your primary residence, then this house would be subject to cap gains. Also has your sister also had a house since 2006?

Also, am I right in assuming that the price of the house only increased $10k from 2010 to now?
Deal Addict
Mar 3, 2018
2108 posts
2123 upvotes
GTA
There are now income tax implications for you and your sister from the transfer to you two. If it had remained your parents principal residence that they still owned there would have been none for them or you.

You and your sister are looking at capital gains tax from the period you and her no longer qualified it as your principal residence. You take the FMV at that point in time as your cost base. The gain is measured by the current sales price or FMV less your cost base and any selling expenses. If you transfer it back to your parents that is considered a sale by CRA subject to capital gains tax as above.
[OP]
Newbie
Apr 13, 2005
39 posts
6 upvotes
Calgary
This is what I thought. My sister also has her own place and since when I left it's been pretty stagnant in price in that area but when my sister left it may have been just before prices jumped so it would be a larger gain on herself.

Thanks for the input
Member
Jun 6, 2014
260 posts
102 upvotes
Toronto, ON
There's a lot of advice based on FMV. But if you look at the Principle Residence exemption form it's based on number of years to simplify the calculation. For example, own house for 30 years, 10 years as principle residence. Claim exemption for 10 years is 10/30 * capital gain amount. Pay capital gain for other 20 years (20/30 of the amount).

In your situation, the FMV at transfer in 2003 seems relevant. But the 2010 FMV doesn't. Current sale price of (430K - 200K) * 7 years exemption / 17 years owned, is your exemption amount. So the amount of capital gains you'd pay would be on (430-200)*10/17=188K.
Deal Addict
May 23, 2006
1069 posts
268 upvotes
Vancouver
There's also a +1 rule whereby you get one additional bonus year as principle residence even if you haven't designate that as such.
icedtea365 wrote: There's a lot of advice based on FMV. But if you look at the Principle Residence exemption form it's based on number of years to simplify the calculation. For example, own house for 30 years, 10 years as principle residence. Claim exemption for 10 years is 10/30 * capital gain amount. Pay capital gain for other 20 years (20/30 of the amount).

In your situation, the FMV at transfer in 2003 seems relevant. But the 2010 FMV doesn't. Current sale price of (430K - 200K) * 7 years exemption / 17 years owned, is your exemption amount. So the amount of capital gains you'd pay would be on (430-200)*10/17=188K.
Deal Addict
Mar 3, 2018
2108 posts
2123 upvotes
GTA
icedtea365 wrote: There's a lot of advice based on FMV. But if you look at the Principle Residence exemption form it's based on number of years to simplify the calculation. For example, own house for 30 years, 10 years as principle residence. Claim exemption for 10 years is 10/30 * capital gain amount. Pay capital gain for other 20 years (20/30 of the amount).

In your situation, the FMV at transfer in 2003 seems relevant. But the 2010 FMV doesn't. Current sale price of (430K - 200K) * 7 years exemption / 17 years owned, is your exemption amount. So the amount of capital gains you'd pay would be on (430-200)*10/17=188K.
This wouldn't apply. The parents say they were renting from the kids. That means there was a deemed disposition (sale) as a result of a change in use from a principal residence to a rental property at the time the kids moved out around 2010. Thus that is the starting point for the FMV being the cost base for the rental property. Technically the kids have already claimed the principal residence exemption up until 2010 by the deemed disposition from change in use.
Sr. Member
Oct 21, 2006
589 posts
89 upvotes
the transfer to their children was poorly executed
Deal Addict
May 23, 2006
1069 posts
268 upvotes
Vancouver
Also, you have to consider land transfer tax when property changes hand.
DaveTheDude wrote: This wouldn't apply. The parents say they were renting from the kids. That means there was a deemed disposition (sale) as a result of a change in use from a principal residence to a rental property at the time the kids moved out around 2010. Thus that is the starting point for the FMV being the cost base for the rental property. Technically the kids have already claimed the principal residence exemption up until 2010 by the deemed disposition from change in use.
Deal Fanatic
Jul 3, 2011
5887 posts
3039 upvotes
Thornhill
icedtea365 wrote: There's a lot of advice based on FMV. But if you look at the Principle Residence exemption form it's based on number of years to simplify the calculation. For example, own house for 30 years, 10 years as principle residence. Claim exemption for 10 years is 10/30 * capital gain amount. Pay capital gain for other 20 years (20/30 of the amount).

In your situation, the FMV at transfer in 2003 seems relevant. But the 2010 FMV doesn't. Current sale price of (430K - 200K) * 7 years exemption / 17 years owned, is your exemption amount. So the amount of capital gains you'd pay would be on (430-200)*10/17=188K.
I echo this calcualtion with a couple notations.

You lived in the house until 2010 therefore it was your principal residence. If your parents reported they were paying rent for all the years they transferred to you and your sibling, the calculation does become a bit differerent in that from the time they started paying rent to the time you and your sister no longer lived in it as your primary residence, the capital gains would apply to the rental portion.

Your sibling obviously has an additional number of years to report.

The taxable capital gains amount will be 50% of the calculated gain, split between the two of you according to the number of years it was not your/your sibling's primary residence.

If during the time of the rental you and your sibling deduced depreciation then that amount must be added back as income to you and your sibling and the calculation has to be split between land and building values. Hopefully you have the previous assessment notices available as the CRA accepts their split on values - if they're available for all the years in question, better yet, otherwise you will probably need to get an appraiser involved and it won't be easy determining the value from 199x, 2003 and 2010.

You need to speak with your accountant for all of it because in addition to the above calculations so as to ensure the CRA isn;t incentivized to come after you. for any wonky claims or calculations They can also tell you whether or not you are may be eligble for up to 4 years as your principal residence after you moved out.

It could even be more complicated if say your parents used the whole house while you and your sibling was living there. In which case a tax lawyer would be the better bet.
Deal Fanatic
User avatar
Dec 27, 2009
7392 posts
4664 upvotes
Victoria, BC
I'm having a hard time understanding why this transfer was done in the first place? Your parents obviously weren't old at the time (this is the only situation I have heard of such things is usually if the parents are very old and start transferring stuff to the kids' names). Seems odd to me. I see no way out of this now without capital gains. The whole thing is weird to me.
Sr. Member
Oct 21, 2006
672 posts
418 upvotes
Fantastical wrote: There's also a +1 rule whereby you get one additional bonus year as principle residence even if you haven't designate that as such.
Can someone please help me understand how the +1 rule work? Does the +1 mean 12 months of overlap or within the same calendar year?
Member
Jun 6, 2014
260 posts
102 upvotes
Toronto, ON
Jigsaw wrote: Can someone please help me understand how the +1 rule work? Does the +1 mean 12 months of overlap or within the same calendar year?
The +1 is for the overlap year when you're moving from House A to House B.
Deal Addict
User avatar
Nov 26, 2003
1263 posts
268 upvotes
All this previous monkey business will have big tax implications. See an accountant and a lawyer.

Top