Instead of transferring the cottage ownership, just add MP to the deed.
As parental units pass on, rinse and repeat.
|
|
|
So....election in 2024!?
- Thread starter mimico_polak
- Start date
As parental units pass on, rinse and repeat.
Gotcha, in that case his parents would be on the hook for the CG.
In this case you want to make sure it's a joint tenant relationship, so survivorship kicks in as one passes.
However, this can open up a bunch of unforeseen tax complications as well as personal ones.
If there are multiple siblings are they added? If those siblings get married (or even common law in some cases!!) their spouses are automatically entitled to a slice of the pie if a divorce happens.
It looks like that can trigger the same thing. He gets listed as a partial owner and that portion of the property triggers CG tax now (now if it was 50% owner, he could dodge the higher CG tax bracket by spreading the gift over two years with 50% each year).
"To save and defer capital gains tax, you could add your children to the deed, making them co-owners of the property. If the property value has gone up, it would trigger a capital gain on the portion of the cottage that your children now own (at fair market value), and you would pay the tax on that now."
EDIT:
There is a way around this for the future but it won't work now. Consult your tax accountant. Have a corporation that owns the cottage. When you want to sell the cottage, don't. You want to sell the corporation that owns the cottage. There should be no capital gains (or land transfer tax) as there was no ownership change on the property. It is still owned by the same corp. It can be harder to find a buyer as they won't be able to get a mortgage to purchase the corporation. Rules have gotten more complicated recently but in the past, you might have been able to use the small business exemption to get ~800K tax-free out of the sale of the corporation (for every owner so MP and his wife could get 800k each). I think the rules around passive income at corps have made this harder.
Last edited:
Singh: The Conservatives don't have a climate change plan. They're going to let the evil corporations pour toxic waste into our rivers.
Also Singh: We have a proposed outline for our proposed plan which we will release in due time. (reads: we don't have a plan either, but our plan we will eventually have will be more unicorn-centric.)
Also Singh: We have a proposed outline for our proposed plan which we will release in due time. (reads: we don't have a plan either, but our plan we will eventually have will be more unicorn-centric.)
Find some radioactive material on the land that renders the property useless? Just go out and buy a few hundred smoke alarms to canibalise.
Ideally something that doesn't get a 16' fence around your property that prevents you accessing it.
Numbers are off first 250 k taxes at 50 percent of your tax rate which probably 40% so 20% so 50k the rest is taxed at 66% of your rate so 26% or 48k
Sent from the future
Doesn't work no exception on assets and company sale triggers capital gains tax.
Sent from the future
I know that ... what I was saying is I thought the CHANGE would only effect the very wealthy but subsequent posts seems that's definitely not the case if the threshold is $250k.
It is 50% and 66% of your tax rate not of the value so if you have a 50% tax rate 25% and then 33% most places actually don't give any discounts.
Sent from the future
How long does a property need to be a principal residence to avoid the CG. For example if MP's parents change their principal residence to the cottage from the house (on paper). How many years until it is free and clear of CGs?
It maybe is too long of a game in this case but lets say the magic number is five years (that I do not know) for the CRA.... change it, sell the cottage in five years, change it back to the house, sell it in 5+ years?
It maybe is too long of a game in this case but lets say the magic number is five years (that I do not know) for the CRA.... change it, sell the cottage in five years, change it back to the house, sell it in 5+ years?
Yeah. Realistically it affects almost 100% of the people with a second property that has been held for more than five years. If I was sitting on substantial capital gains in an unregistered account (I'm not), I'd be talking with smart people about the best approach. Market investments are easier as you could sell 250 a year to stay below the threshold but if you had millions there, you may be better to trigger CG now and rebuy after 30 days (or buy something different now) as 250 at a time would take too long to unwind.
If they change their principal residence to cottage, they have the same issue. A tax bill is due for CG at fair market value. Any future increase on cottage is CG tax free. Their home would start collecting CG though from fair market value today until sold.
1 year iirc?
But then the property where his parents currently live becomes investment immediately.
Yes it does, but after the sale of the cottage they "move" back there and it is once again their PR.
Wow, I need to really stop sharing on this site....I love you all (most of you) so much here and appreciate the input.
My understanding is that ANY change in ownership will trigger CG that my parents (or someone) will need to pay.
i.e.: I get added to title - CG trigger
I take possession - CG trigger
Sale - CG trigger
Living Trust - I can get added on, and then CG trigger upon death of both parents (so technically defer but then if cottage goes up...CG goes up with time).
So there are no real options to avoid / defer it easily. I can throw rocks through the windows, and tear it down to the studs and force a lower valuation.
I will not ask my parents for the cottage, and for THEM to pay the CG...that's wrong IMO.
Honestly sometimes I wonder if it would just be easier to sell the cottage, take the money and be done with it...but sentimental value is what it is.
My understanding is that ANY change in ownership will trigger CG that my parents (or someone) will need to pay.
i.e.: I get added to title - CG trigger
I take possession - CG trigger
Sale - CG trigger
Living Trust - I can get added on, and then CG trigger upon death of both parents (so technically defer but then if cottage goes up...CG goes up with time).
So there are no real options to avoid / defer it easily. I can throw rocks through the windows, and tear it down to the studs and force a lower valuation.
I will not ask my parents for the cottage, and for THEM to pay the CG...that's wrong IMO.
Honestly sometimes I wonder if it would just be easier to sell the cottage, take the money and be done with it...but sentimental value is what it is.
I like these numbers as I can work with them. Hopefully this is correct.
And the increase in the house during the period where it is not their principal residence is subject to another CG tax bill (fair market value when you move back minus fair market value when you vacated).
It's not 'how long', it's 'how many years is it your principal residence'.
So in 30 years, each year it was identified as Primary Residence would be exempt from gains during that particular year.
If out of 30 years, they claimed 10 as primary residence...then those particular 10 years are exempt from CG but you need to FMV for those particular years.
Both parents are on title, so in theory if you can split the capital gain tax it would be lower as my mom is retired and doesn't have income outside of the CPP / OAS etc. Dad is still employed.
There is potential for spreading out the capital gain over 5 years (20% / year) through a particular process though, so that makes the sting smaller.
Spread it out, rent it out to pay the 1/5 of the CG per year, and hope the rent makes the payments.
Does that need lawyering every year or can that get setup once and then run its course? I suspect it would need yearly lawyering and determination of fair market value to update title and assess payment required. That quickly eats up any savings provided by the plan.
|
|
|
|
|