If you are the sole owner of a property, and you transfer title of the property into joint ownership with another person, you may be deemed to have disposed of your share at fair market value (unless the joint owner is your spouse). You would have to report this “sale” on your personal tax return and pay the income tax. The new joint owner would have a deemed purchase at the same amount. Of course, it is a question of fact whether there has been an actual change in beneficial ownership.
TAX TIP If a rental property is purchased, the split of cost between land and building should be agreed upon by the vendor and purchaser. The vendor may want a higher portion of the selling price to be allocated to land, in order to avoid recapture of capital cost allowance, if any has been claimed. The purchaser may want a higher portion of the purchase price to be allocated to building, in order to claim more capital cost allowance. Please contact us now for professional advice regarding your rental property.
According to Canada Revenue Agency, if there is no change in beneficial ownership there is no disposition for tax purposes. They note that a true joint tenancy arrangement would not exist and hence the new joint tenant would not acquire an interest in the property at any time. Therefore, upon death of the taxpayer, s/he would be deemed to dispose of 100% interest in the property to the joint tenant who would be deemed to acquire it at the same amount.
To avoid undesirable tax problems when transferring title in a property, please contact our CPA firm.
TAX TIP The gain on the sale of real estate is a capital gain unless the property has been purchased with the intent of reselling at a profit, or developed and sold as a business endeavour. If it is considered a business transaction, the entire profit or loss on the sale is taxable or deductible. If the transaction is a capital gain (principal residence, summer cottage, second home, rental home, etc.), only 50% of the gain is taxable. If the property is your principal residence, the principal residence exemption may eliminate all or part of the capital gain. If you need assistance determining how to treat your sale of property, please contact us now.
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