Transferring property from parent to child is a common occurrence in Canada, and is often associated with estate planning. On the surface, it seems like a simple and straightforward process. However, when you think about the legal, tax, and financial considerations, you would see that it can be challenging to navigate this process alone.
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Now, let’s look at the various considerations for the transfer of property from parent to child in Canada.
Under Canadian law, a property can be transferred through sale, gift, or inheritance. It is safe to keep in mind that the legal implications for each of these methods may differ.
It is important to have and keep your legal documents as they are proof of the transfer. An example of such a legal document is a deed of transfer. These documents must comply with provincial and territorial laws.
Some parents may opt for joint ownership with their children. It is an easier and simpler way to ensure the transfer process.
When property is transferred, the Canada Revenue Agency (CRA) considers it a disposition. This could trigger capital gains tax.
If the property is a principal residence, it might be exempt from capital gains tax. Keep in mind that there is no gift tax in Canada. However, other tax implications like capital gains tax still stand. Also, inheritance as a form of transfer might have implications for estate taxes.
If there’s a mortgage on the property, the ability to transfer it to a child depends on the lender’s policies. Parents need to assess their financial position to ensure the transfer doesn’t adversely affect their retirement plans.
It is important to note that each province in Canada has specific laws and regulations regarding property transfer. For example, British Columbia has a Property Transfer Tax, while Ontario has a Land Transfer Tax. It’s crucial to understand these local nuances.
A mother signed the paperwork to transfer ownership of her home to her daughter. No money was paid by the daughter when the transfer was made. A few years later, the mother said she never intended to give the property to her daughter as a gift or otherwise. She sued her daughter to recover legal ownership of the land, but her claim failed. The evidence clearly established that the mother had agreed to transfer the property and intended it to be a gift. It was not open to the mother to undo the transfer because she had a change of heart.
In Hertendy v. Gault, Marian Hertendy and her husband Carl owned a home. When Carl died in 2011, his interest in the home passed to Marian, so that she was the sole owner. On April 4, 2012, Marian transferred title to the property to her daughter, Beverley. The transfer documents were prepared by and signed in the presence of a lawyer. The transfer reserved a life interest in the home to Marian (that is, the right to remain in the home for the rest of her life). Marian continued to live at the property. Beverley paid nothing at all at the time of the transfer, but in the years that followed, Beverley and her husband paid some of the ongoing expenses relating to the home, including property taxes and insurance. This arrangement continued for a few years until Marian challenged the property transfer on a number of grounds. In her lawsuit, she said she was vulnerable, depressed after her husband’s death, unduly influenced by her daughter, and didn’t understand the document she signed—but the main thrust of the mother’s claim was based on the presumption of resulting trust.
As a general rule, the presumption of resulting trust applies to gratuitous transfers. Where a transfer is made for no consideration, the onus is on the transferee to demonstrate that a gift was intended. To rebut a presumption of resulting trust, the transferee must demonstrate at the time of the gratuitous conveyance that the transferor intended to gift the property at issue. The evidentiary standard to rebut the presumption of resulting trust is a balance of probabilities. For more on resulting trusts, see our BC estate litigation team’s earlier blog posts, including our review of the leading decision of the Supreme Court of Canada in Pecore v. Pecore, (2007) SCC 17 which clarified that the presumption of resulting trust will only determine the result where there is insufficient evidence to rebut it on a balance of probabilities.
The focus in any dispute over a gratuitous transfer is the actual intention of the transferor at the time of the transfer. If the intention to gift the property is established on a balance of probabilities, there is no need to rely on the presumption. In Hertendy v. Gault, the evidence satisfied the court that Marian intended to gift the property to Beverley at the time the transfer was made, with the stipulation that she retain a life interest in the property. Marian’s 2011 Will stipulated that Beverley was to inherit the home, which provided additional evidence of Marian’s intention with respect to the house. The reason for transferring the property in 2012 before Marian’s death was to alleviate Marian’s concerns that she would not be able to afford expenses for the home after her husband’s death in 2011. The mother and daughter had had discussions about the transfer throughout the year leading up to the lawyer preparing the transfer documents. Beverley agreed to help her mother out with expenses and did so after the title was transferred.
Marian later got mad at Beverley and decided to take the house back. Marian changed her Will in 2017, removing Beverley from it. It was only after she had a falling out with her daughter that the mother raised allegations of undue influence and claimed that she did not understand the effect of the transfer document. Marian’s evidence was not believable. She was noted by the court as having “a convenient memory, or lack of memory, on essential issues.” Marian’s evidence that she did not understand the legal consequences of the document she signed was undermined by the evidence of both of her daughters. The most striking evidence came from her other daughter, Lorna Greenall. In 2017 after the court case had begun, Ms. Greenall confronted her mother and said: “But you gave her the house” (meaning Marian transferred the home to Beverley). Marian’s response was: “I’ve changed my mind.” In other words, in 2012 the mother agreed to transfer her property to her daughter. She executed the documents for this purpose. In later years she changed her mind. The court concluded that it was too late and decided the case in favour of the daughter.
As a rule, the presumption of resulting trust will apply to gratuitous transfers between a parent and an adult child. The child who receives a gratuitous transfer of property from his or her parent bears the burden of rebutting the presumption of a resulting trust by showing on a balance of probabilities that a gift was intended at the time of the transfer. If that intention is shown, then the gift is a gift and it is too late for the parent to “change their mind.”
To successfully transfer property from parent to child in Canada, you should engage a real estate lawyer and a tax advisor to help you navigate the rigors of the process. Then, you should get a professional valuation of the property for tax purposes.
Ensure all legal and financial documents are in order for documentation purposes. Finally, report the transfer to the Canada Revenue Agency as required.
Transferring property from parent to child in Canada is a viable way to support children but requires careful planning and consultation with professionals. Understanding the legal, tax, and financial implications is crucial to avoid unforeseen complications. By taking a thoughtful and informed approach, parents can ensure that this generous act benefits their children as intended.
Do you have any questions about estate and trust law? Our team of experienced lawyers can help.
Can a parent give a house to their child in Canada?
Yes, a parent can gift a house to their child in Canada. A deed of gift is the legal document that allows parents to gift their beneficiaries ownership of properties.
What is the youngest age you can own a property in Canada?
To own or purchase a property in Canada, you must be up to 18 years old.
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