Real Estate

Any problems with demolishing a house and gifting the land to a child?

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  • Jan 26th, 2021 4:53 am
[OP]
Newbie
Jan 26, 2019
3 posts
1 upvote

Any problems with demolishing a house and gifting the land to a child?

I want to gift my cottage to my daughter so she can build a full time residence. Since this is a second property I understand I will have to pay capital gains on the fair market value. I have already gotten an official appraisal, and about half the value is allocated to the existing building. Since my daughter intends to demolish the house and build a new one. Could I demolish the house and then gift the property? Doing this would reduce my capital gains by almost half. Are there any problems with this idea? Will the CRA accept this? Would there be permit problems? I.e. do you need a full plan to build a new home to get a demolition permit? If so, can I file the plan for the new house, demolish the existing then transfer the permits (paying whatever fees are required) to my daughter? If the new build relies on "or as existing" clauses in the zoning regulations, could the transfer after demolishing the existing home, cause these clauses to no longer apply? i.e. because there was no existing home when the transfer of ownership occurred, you can no longer be grandfathered in the zoning requirements? Thanks for your insights!
4 replies
Deal Addict
User avatar
Dec 4, 2009
4914 posts
1266 upvotes
I think the first half of your post is pretty straightforward. It's your land, so I don't think you need new building plans to demolish anything, and considering she's planning on demo anyway, it makes sense to reduce your capital gain.

As for zoning regulations, are you aware of any special zoning considerations? If there are, I'd speak to a lawyer (I'd probably speak to a lawyer about this generally anyway).
"I'm a bit upset. I've been grab by the back without any alert and lubrification"
Lucky
Sr. Member
May 29, 2012
520 posts
184 upvotes
Southern Ontario
I would definitely speak to a zoning consultant or just a helpful person at your municipal building office.
It may well affect what she can do with the property after you demolish a building.
I would think the first part makes sense about tearing it down to keep the cap gains down but there may be other options and considerations, so need to ask accountant also.

I know once we rebuilt a cottage 99% new, only kept the foundation and fireplace and the reason they did this was it would be easier/cheaper to call it a renovation versus a new build. I wasn't involved it the actually discussions but that's what I was told.

Always better to check first could save you $$$
Deal Addict
User avatar
Mar 23, 2011
1716 posts
726 upvotes
I know in our township where a cottage is built is grandfathered and so if I demolish the existing structure I couldn't rebuild in the same spot unless I leave a certain percentage of the existing structure.
Zoning is as mentioned a consideration but a call to your accountant may find you some other option as well.
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Newbie
Sep 26, 2017
30 posts
5 upvotes
You can't just demolish your house, mortgage on it or not, without consulting the city and the urban planning department / city architects / technical drafters, etc. Demolition is a health hazard if not done properly and up to the standards of the safety code. There might be some areas in Canada that are immune to these laws, but most definitely do not consider demolishing anything without proper city consultation. I was reading legal judgements on cases for people who demolished without the city's consent, and I've read crazy verdicts. From being required to rebuild the structure EXACTLY as it was to the more common (and likely the reason why it was done) paying some pretty hefty fines that to someone with deep pockets or an investor is "just the cost of doing business" since they knew they wouldn't get approved for a demolition permit.

As for your tax shield structure, hire a RE lawyer to consult you on the matter. There might be better ways for you to reduce your capital gains obligations while gifting your daughter the property then blatantly demolishing the property to avoid paying a portion of it (which in the eyes of the law and even the CRA, could possibly be indicative of poor faith / bad intentions right). Ultimately you will want to rollover the cottage into a corporation as a holding company/trust (if not done already) and set up a structure in a way that could possibly be to your advantage, and explore all the options of corporate structuring available to you in share structuring, life insurance policies, etc. There's a lot of things the right lawyer can get creative with to tailor the situation to your needs.

And going to the city and "poking" around or phishing for information and advice, if you're not planning on using it, isn't recommended either. As others have mentioned there's a lot of rules on patrimony and heritage and requirements, and one of those blessings that double as a curse is if your property is deemed a heritage site. Just google "your city demolition permits" and you should be able to bring up results off the borough's site and decisions made at one of the meetings. If not just explore the BOROUGH's site for which the cottage is in, and go to the area that talks about permits/construction. Boroughs have their own rules in many cases and zoning laws that differ from one borough to the next part of a bigger geographical area/city.

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