Real Estate

legal/tax implications regarding purchasing a condo for my son

  • Last Updated:
  • Dec 13th, 2020 8:52 pm
Newbie
Oct 30, 2020
60 posts
163 upvotes

legal/tax implications regarding purchasing a condo for my son

I'm planning on helping my son purchase a condo. The way i view it is that I'm giving / gifting the purchase cost of the condo to my son. I don't plan on him repaying me.

However, being older and more pessimistic than he is, I am concerned about the potential of his current fiance (and soon to be wife) taking half (or perhaps more) of this financial asset if their marriage goes sour down the road. So i want to plan for this contingency.

Now, i know the safest prevention method is to buy the condo under my own name and let him live there till i die. But since it would not be my primary residence, it would incur capital gains taxes.

I know some of you may still believe this is the best method, but for argument sake, lets suppose i've decided to put my son's name as owner. In that case, is there any way i can still maintain safeguard against my fear as described above?
Forgot to say, lets ignore the possibility of forcing them to sign a pre-nup.

I'm wondering if i could get a lawyer to help me prepare a loan documents or draw up an interest-free private mortage or something to that effect, so that if things go south, i still have a claim on the property, but if everything works out well, then at some point down the road i can just tear up the loan papers or cancel the mortgage.

Does this sound legally feasible? And will i incur any tax implications in taking the above route?

Any advice and recommendations are much appreciated!
14 replies
Deal Fanatic
Jan 15, 2017
5749 posts
6121 upvotes
Ottawa
OP, what province will this home be in? Marital laws regarding property differ from province to province.
Deal Fanatic
Jul 4, 2004
7429 posts
4676 upvotes
Ottawa
I'd be curious to hear what you find out but in Ontario, I think the best option is a pre-nup. I believe that without a pre-nup, once they are married, common-law or have a child, the home becomes the matrimonial home and each spouse is entitled to half the equity.

The cleanest way might simply (especially if he / they can come up with the downpayment) is to simply co-signing the mortgage (although I've heard that banks are now asking co-signers to also be on title which might make things more difficult). In this scenario, in case of any split, they would only be splitting the down-payment and any equity they've built up. (If you give "him" the down-payment, you are effectively giving "them" the down-payment as soon as it becomes the "matrimonial home"). Not sure if this is an option but if they are unable to come up with the down payment themselves, perhaps having her family supply half of it and you supply the other half is the best option).
Newbie
Oct 30, 2020
60 posts
163 upvotes
I'm not sure if I can act as a private mortgage lender, so legally the house will be in my son's name (and as his primary residence exempted from capital gains tax), but if his marriage goes sour, I would have a legal claim on the home (most of it at least) since technically he still owes me for the principle balance of the purchase price.

If I were to go this route. Would the CRA consider this to be a non-arms-length transaction and still deemed that I have earned interest income (even tho i'm not actually gonna charge my son interest)?

Also, down the road (if i decide that their marriage is sound), would i be able to just "forgive" the loan/mortgage without tax implications?
Banned
Jul 23, 2020
473 posts
421 upvotes
Cheaping out on legal advice here is not wise. Divorce court will take your son to the cleaner. Relying on RFD comments will get you nowhere.
Deal Addict
User avatar
May 10, 2008
2190 posts
2394 upvotes
Vancouver, BC
sooonk wrote: Cheaping out on legal advice here is not wise. Divorce court will take your son to the cleaner. Relying on RFD comments will get you nowhere.
This is the best advice. Talk to a professional. And please come back and kindly let us know what you find out.

I tell my parents all the time to not gift any properties to their kids. I would rather cough up the capital gains later when buying the property off them than cough up half the house during a divorce.
Deal Addict
User avatar
Dec 13, 2016
4527 posts
4056 upvotes
michelb wrote: I'd be curious to hear what you find out but in Ontario, I think the best option is a pre-nup. I believe that without a pre-nup, once they are married, common-law or have a child, the home becomes the matrimonial home and each spouse is entitled to half the equity.

Prenup would have absolutely no meaning in most of canada regarding this situation.
Deal Addict
Mar 3, 2018
3475 posts
3994 upvotes
GTA
Taking back an interest free mortgage for the fair market value of the property is an excellent way to ensure you will get back your original outlay. Nothing improper with that as CRA's attribution rules do not apply to adult children.

However the value of the mortgage will be deemed to be the consideration received when determining land transfer tax on the sale to the son. If it was gifted outright you would use a $2 value and pay no land transfer tax. Your son may qualify for the first time buyers partial rebate that would help.
Deal Addict
Mar 27, 2015
1550 posts
677 upvotes
Thornhill, ON
You need to speak to a family law lawyer and/or a real estate lawyer for professional advice. And your son and his future wife also must do the same (so they can each receive independent legal advice). All three of you should NOT retain the SAME lawyer for this purpose because of conflict of interest.
Member
Mar 26, 2012
461 posts
362 upvotes
DaveTheDude wrote: Taking back an interest free mortgage for the fair market value of the property is an excellent way to ensure you will get back your original outlay. Nothing improper with that as CRA's attribution rules do not apply to adult children.
I think that there should be a deemed fair mkt interest income to the father for the interest free mortgage, in a related party transaction (father & son), as per section 69 of the tax act. The attribution rules in section 74 of the tax act appears not applicabe for giving a interest free mortgage, as it generally applies to transfer of property, e.g, father transfer $1M to a minor son, and the investment income therefrom would be attributed back to the father. But, the attribution rules would not apply to the transfer of $1M to an adult son.
Member
Mar 26, 2012
461 posts
362 upvotes
michelb wrote: I'd be curious to hear what you find out but in Ontario, I think the best option is a pre-nup. I believe that without a pre-nup, once they are married, common-law or have a child, the home becomes the matrimonial home and each spouse is entitled to half the equity.

T
Common Law Couples – Matrimonial Home? Ontario law does not recognize matrimonial homes for common law couples. As such, the sole owner is free to do as she wishes with her property, and may evict the other spouse or sell the home as she pleases. A non-title spouse who refuses to leave may be liable for trespassing.
https://www.mondaq.com/canada/family-la ... respassing.
Member
Dec 5, 2017
299 posts
317 upvotes
I would loan him the money with no interest or payments for 15 years. If they separate and sell the house you get your money back which you could then give to your son. They would split any profit from the home appreciation. If you are happy with their relationship after 15 years you can forgive the loan. Or collect the money, which is still a pretty sweet deal for them.
Sr. Member
Sep 26, 2006
638 posts
50 upvotes
Rocky Mountains
Speak to a professional but one way to secure it could be within a trust
Reality Check
Deal Fanatic
Jul 4, 2004
7429 posts
4676 upvotes
Ottawa
fkungery wrote: Common Law Couples – Matrimonial Home? Ontario law does not recognize matrimonial homes for common law couples. As such, the sole owner is free to do as she wishes with her property, and may evict the other spouse or sell the home as she pleases. A non-title spouse who refuses to leave may be liable for trespassing.
https://www.mondaq.com/canada/family-la ... respassing.
I stand corrected. Matrimonial Home doesn't extend to common-law.

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