Land Transfer Tax (ON) - Parents selling to Child - Can you avoid LTT?

Hey there, my partner is a lawyer but I am not ... however if I understood it correctly, if the condo is paid off, your parents can sell the property to you with a consideration of $2, effectively “gifting” the condo to you. LTT in this case will be null. The only risk in it is that if this condo shall one day become an investment property, you will incur a hefty amount in capital gain tax (the difference between the future resale value and $2). However if you intend to make this condo your principal residence, then you won’t have to worry about the capital gain thing... in any case I suggest that you consult a real estate lawyer and your accountant to be 100% sure .

toothpaste wrote: ↑
Hey there, my partner is a lawyer but I am not ... however if I understood it correctly, if the condo is paid off, your parents can sell the property to you with a consideration of $2, effectively “gifting” the condo to you. LTT in this case will be null. The only risk in it is that if this condo shall one day become an investment property, you will incur a hefty amount in capital gain tax (the difference between the future resale value and $2). However if you intend to make this condo your principal residence, then you won’t have to worry about the capital gain thing... in any case I suggest that you consult a real estate lawyer and your accountant to be 100% sure .

I was reading this article. Not sure if we should go for it or not.

I am concerned that the province or city might know, why we are doing it - and might charge the Land Transfer Tax after all on the FAIR MARKET VALUE of the house, irrespective of what low price we internally sell it for

Yes this will be my only property and principle residence after I buy it from our parents. There will be no secondary house in future or now. So capital gains wise, I should be fine.

Just wondering if it is illegal to do this or we are perfectly fine to buy it for a small amount. Tomorrow I don't want any issues from the city, province or CRA!

Also how will the mortgage, which I take will work. Say the condo is $ 400,000 ( fully paid off by my parents). I intend to put $ 300,000 donwpayment and get $ 100,000 mortgage from the bank.

So can I still buy it for $ 1 and give my parents $ 300,000 from my pocket and $ 100,000 mortgage from the bank? Will the bank give me a $ 100,000 mortgage when the sale is for $ 1?

Selling your home to your kids—for $1

You need to consider if the savings for your child are worth the risk to you

by Jason Heath
Nov 20, 2018
https://www.moneysense.ca/save/taxes/tr ... ids-for-1/

alized wrote: ↑ Will the bank give me a $ 100,000 mortgage when the sale is for $ 1?

The bank looks at the appraised value of the home and compares the mortgage amount to it.
IIRC banks are comfortable approving mortgages that have a LTV (Loan-to-Value) ratio less than 80% which seems to be the case.

toothpaste wrote: ↑ Hey there, my partner is a lawyer but I am not ... however if I understood it correctly, if the condo is paid off, your parents can sell the property to you with a consideration of $2, effectively “gifting” the condo to you. LTT in this case will be null. The only risk in it is that if this condo shall one day become an investment property, you will incur a hefty amount in capital gain tax (the difference between the future resale value and $2). However if you intend to make this condo your principal residence, then you won’t have to worry about the capital gain thing... in any case I suggest that you consult a real estate lawyer and your accountant to be 100% sure .

CRA uses FMV for transactions between related parties known as non arms length transactions. So the OP’s cost base would be the FMV for capital gains tax purposes if an investment property not $2. Doesn’t matter that the purchase offer says $2 to CRA. Although that will help for land transfer tax.

The OP mentioned it will be his principal residence so he won’t have capital gains implications anyways but his cost base is still FMV. Just wanted to mention it for other readers.

DaveTheDude wrote: ↑ CRA uses FMV for transactions between related parties known as non arms length transactions. So the OP’s cost base would be the FMV for capital gains tax purposes if an investment property not $2. Doesn’t matter that the purchase offer says $2 to CRA. Although that will help for land transfer tax.

The OP mentioned it will be his principal residence so he won’t have capital gains implications anyways but his cost base is still FMV. Just wanted to mention it for other readers.

Is it illegal from the city or province point of view? I mean what prevents more people from doing that to avoid LTT?

I mean although the sale deed will say $ 2, my parents will be getting the full amount anyway from me for their condo - say $ 300,000 from my Savings and $ 100,000 from the bank from which I will be taking Mortgage.

I guess the risk is that the $400,000 they get might be considered as income for CRA purposes and hence they might have to pay Income tax on it, as CRA will say well you only got $ 2 from the sale of your house!
The rest $ 400,000 is Income and not from the proceeds of the sale!

So to avoid $ 10,000 in LTT , they might end up paying huge income tax on $ 400,000! , although it's there only house and principle residence, so no capital gains tax.

Why don't you ask your lawyer?

You won't be the first kid buying property from their parent or vice versa.

alized wrote: ↑ Is it illegal from the city or province point of view? I mean what prevents more people from doing that to avoid LTT?

I mean although the sale deed will say $ 2, my parents will be getting the full amount anyway from me for their condo - say $ 300,000 from my Savings and $ 100,000 from the bank from which I will be taking Mortgage.

I guess the risk is that the $400,000 they get might be considered as income for CRA purposes and hence they might have to pay Income tax on it, as CRA will say well you only got $ 2 from the sale of your house!
The rest $ 400,000 is Income and not from the proceeds of the sale!

So to avoid $ 10,000 in LTT , they might end up paying huge income tax on $ 400,000! , although it's there only house and principle residence, so no capital gains tax.

Like I mentioned CRA uses fair market value for family transactions. So $400K FMV. That is the source of your parent’s increased cash assets. You have nothing to be concerned about with CRA.

Your concern is with land transfer tax. You are stating for land transfer tax that the property was a gift with $2 consideration. When in fact $400K in consideration was given with a mortgage doc that can be traced.

It's perfectly legal to gift a property to their children. One day I wish I am able to gift them a property and still have my own.