Real Estate

Buying rental property for my parents. Don’t need to be cash positive. Any “accounting” tips?

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  • Aug 27th, 2021 4:33 pm
[OP]
Deal Addict
User avatar
Aug 28, 2012
1908 posts
1056 upvotes
Kanata, ON

Buying rental property for my parents. Don’t need to be cash positive. Any “accounting” tips?

I’ll be buying a rental property and renting it to my parents. The main goal is to relocate them to our area, so while I don’t want to be super cash flow negative on a monthly basis, I also don’t mind eating a bit considering it will be better for them and us on a family level, and I’m building equity in the home and in many years presumably it will be worth more when we resell it.

We have a wonderful relationship with our parents, and don’t foresee any issues with whatever arrangement we agree on. If there were to be issues with this, we will keep it all official.

So, that said, what are some “accounting” tips to keep in mind?
- can the rent be set low to limit my taxable income? Or no rent at all with us allowing them to stay for “free”?
- my parents could then “gift” us more on a monthly basis?
- from a tax basis, can I claim any losses being cash flow negative?
- is there any advantage of setting up a company name to purchase the rental property?
- anything else to keep in mind?

Thanks RFD friends!
8 replies
Sr. Member
Dec 3, 2019
510 posts
464 upvotes
Ontario
Ideally take out equity from current home to just buy new home for cash in your parents' names. This way there's no capital gains on a rental property to you when selling. Include the house in the will so there is no probate or siblings going after it. Make a side contract stating the house is yours.

Income tax losses are not based on Cash Flows as the principal amount of the mortgage is not an expense. You will likely make an income tax profit but will be cash-flow negative.

Not at arm's length transactions need to be done at Market Values. Can't make up numbers when dealing with family.

Corporation allows you to manage the timing of taxes more. Valuable when you sell and have a large capital gain in one year. But the annual cost of a corp. is usually a few thousand dollars.
Deal Fanatic
Jul 3, 2011
6517 posts
3788 upvotes
Thornhill
buysellbuy wrote: Ideally take out equity from current home to just buy new home for cash in your parents' names. This way there's no capital gains on a rental property to you when selling. Include the house in the will so there is no probate or siblings going after it. Make a side contract stating the house is yours.

Income tax losses are not based on Cash Flows as the principal amount of the mortgage is not an expense. You will likely make an income tax profit but will be cash-flow negative.

Not at arm's length transactions need to be done at Market Values. Can't make up numbers when dealing with family.
This is all wrong

There will be probate fees and based on what you are suggesting also capital gains tax on the house. A side agreement opens OP up to a CRA assessment on the basis of the creation of a beneficial trust.

The rent can be below market value, the OP may not then claim any loses,
Sr. Member
Dec 3, 2019
510 posts
464 upvotes
Ontario
I think you just answered for the purpose of showing of how smart you are and how stupid my answer is.

Yes, I'm wrong about the probate but the rest:

Ofcourse you can make up numbers that aren't reported to CRA. How am I wrong.
How does making a side contract suddenly create a trust. Does the side contract get forwarded to CRA or something? The context of the first paragraph is to form the appearance of the house belong to parents, not to do it by the book.

You didn't actually help the OP with the exception of trying to prove me wrong.
licenced wrote: This is all wrong

There will be probate fees and based on what you are suggesting also capital gains tax on the house. A side agreement opens OP up to a CRA assessment on the basis of the creation of a beneficial trust.

The rent can be below market value, the OP may not then claim any loses,
Deal Fanatic
Jul 3, 2011
6517 posts
3788 upvotes
Thornhill
buysellbuy wrote: I think you just answered for the purpose of showing of how smart you are and how stupid my answer is.

Yes, I'm wrong about the probate but the rest:

Ofcourse you can make up numbers that aren't reported to CRA. How am I wrong.
How does making a side contract suddenly create a trust. Does the side contract get forwarded to CRA or something? The context of the first paragraph is to form the appearance of the house belong to parents, not to do it by the book.

You didn't actually help the OP with the exception of trying to prove me wrong.
Sorry if your feelings are hurt. I answered because you gave OP incorrect information that would be hurtful to him not helpful. He came for helpful information.

You answered by guessing. don't guess and if you have to guess either don't answer or put a disclaimer on it, like, "I think the way it works is..."

I am not going to educate you on benefical trusts, I know what I know because I continually invest the time to update my knowledge on real estate matters because leaning something takes more than a minute and it is my job to know what cautions to give people with regard to their real estate . You're free to do spend your own time if you're inclined at all, to reseach it and learn all about it, CRA c.ases will provide an answer to your sarcastic question.

It is up to the OP to decide if I helped them. By the very fact I proved you wrong I helped OP and anyoneelse who might take your post as fact and pass it on to not follow your advice or at least get more information on the opposing views before following your advice.
Sr. Member
Dec 3, 2019
510 posts
464 upvotes
Ontario
okay so stop posting incorrect information.
licenced wrote: Sorry if your feelings are hurt. I answered because you gave OP incorrect information that would be hurtful to him not helpful. He came for helpful information.

You answered by guessing. don't guess and if you have to guess either don't answer or put a disclaimer on it, like, "I think the way it works is..."

I am not going to educate you on benefical trusts, I know what I know because I continually invest the time to update my knowledge on real estate matters because leaning something takes more than a minute and it is my job to know what cautions to give people with regard to their real estate . You're free to do spend your own time if you're inclined at all, to reseach it and learn all about it, CRA c.ases will provide an answer to your sarcastic question.

It is up to the OP to decide if I helped them. By the very fact I proved you wrong I helped OP and anyoneelse who might take your post as fact and pass it on to not follow your advice or at least get more information on the opposing views before following your advice.
Deal Addict
May 23, 2006
1528 posts
557 upvotes
Vancouver
There isn't a solution that fits ALL otherwise Accountants/Lawyers wouldn't exist to charge an arm and a leg for complicated tax planning.

It's all depending on your own situation. Speak to a professional if the $ amount is big.

If it's small, then yes, perhaps google around and try to get free (could be wrong) advice from forum members.

High-level thoughts:

a. Don't set up a corporation unless it's big
b. Do a free gift or fair market value rent; don't do anything in between to complicate things
Sr. Member
May 12, 2003
972 posts
368 upvotes
WHAT?

OP please don't listen to this advice.
buysellbuy wrote: Ideally take out equity from current home to just buy new home for cash in your parents' names. This way there's no capital gains on a rental property to you when selling. Include the house in the will so there is no probate or siblings going after it. Make a side contract stating the house is yours.

Income tax losses are not based on Cash Flows as the principal amount of the mortgage is not an expense. You will likely make an income tax profit but will be cash-flow negative.

Not at arm's length transactions need to be done at Market Values. Can't make up numbers when dealing with family.

Corporation allows you to manage the timing of taxes more. Valuable when you sell and have a large capital gain in one year. But the annual cost of a corp. is usually a few thousand dollars.
Sr. Member
Dec 3, 2019
510 posts
464 upvotes
Ontario
what is your problem?

Why don't you post an actual solution instead of trying to be a big man.

Go ahead lets see how smart you are, post a better solution below:

ssj4_ootaku wrote: WHAT?

OP please don't listen to this advice.

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