Changing the Name on Title - Tax Consequences

[ToddStokowski]

Hi, I have read many questions and responses relating to refinancing properties.

You should be aware that as long as the name(s) on Title do not change, there are no immediate income tax consequences as it relates to a sale or deemed sale (capital gain or business income).

However, if there is a name change on Title, a sale is considered to have occurred on that property at fair market value and taxes (possibly GST) owing.

This is frequently overlooked especially when grandparents or parents are looking at transferring ownership of the family cabin to their grand children/kids.

Just a word of caution.

Todd Stokowski, CA

 

[GarthChapman]

We sometimes have reason (usually financing related) to change the name on a title. For every property we keep on file a properly written and witnessed Trust Agreement stipulating who is the beneficia Owner of the property. This, on the advice of our tax accountants, removes any concern about premature or wrongly assigned tax consequences.

 

[ssteckler]

Todd and Garth,

I`m presently looking for a property in Edmonton for myself and my JV partner. Her intention is, after 12 months, to pull out her capital & profits from her 25% share and use it towards a downpayment for a condo in the Lower Mainland. What are the tax and capital gains issues she will have to deal with when she sells her share. Would it be better if she waited for two years before she sold to lessen the capital gains impact? Is there anything else she will have to deal with? How should I advise her?

Regards,

Stephen

 

[ToddStokowski]

Hi Stephen, if she sells her interest in the property in 12 months, she will pay taxes on her share of the capital appreciation and cash flow.

I don`t know all the facts about her, but I think her profit from the capital appreciation would be taxed as business income, not capital gain. Deferring the sale for a few years may not change the tax treatment either or meet her goals of buying a place on the Lower Mainland.

There are some great threads relating to capital gains/business income treatment. George did a great presentation at the November REIN meeting and a useful checklist to assist in the determination. Check it out.

How are you planning on providing her with her share of the profits - by way of sale or by refinancing?

I recommend that she receives independent legal and tax advice so she is aware of the consequences and that you clear yourself of any possible conflicts in the future.

Hope that helps.

Todd Stokowski, CA

 

[GarthChapman]

Stephen, I am completely in agreement with Todd on this, and he really is the expert. I am just one who has bought and sold enough to have learned a few lessons along the way, and whose curous nature has been blessed with good advisors who were willing to teach me.

Regards,

 

[navaz]

I am of a slightly different opinion. Thats what these things are all about. If the beneficial ownership does not change- then I do not believe a true transfer has taken place. So lets say I am on title on a property, but in reality my buddy owns 50% -does it matter who is on title? We have an agreement to split all profits and we do it each year, reporting the same way each year!

 

[GarthChapman]

QUOTE (navaz @ Jan 9 2008, 09:57 PM) I am of a slightly different opinion. Thats what these things are all about. If the beneficial ownership does not change- then I do not believe a true transfer has taken place. So lets say I am on title on a property, but in reality my buddy owns 50% -does it matter who is on title? We have an agreement to split all profits and we do it each year, reporting the same way each year!


A question for you Stephen,

Navaz raises an issue that makes it apparent that I understodd you to say that your partner would be truly selling her interest after a year. Is that correct? If so I stand by my earlier post. If not then I am with Navaz.

I believe it all comes down to the Beneficial Ownership concept.

 

[ssteckler]

Todd,

Thanks, your response helped. I plan to keep the property so I will refinance to give her share of the profits, as well as her original capital. It makes sense to me that she will be taxed as business income. I will also remind her to get independent legal and tax counsel so she understands how she will be taxed.

Thanks,

Stephen

 

[ssteckler]

Navaz and Garth,

My JV partner plans to sell her interest after one year so the Beneficial Ownership concept won`t apply.

Thanks for your input,

Stephen

 

[navaz]

Just a clarification note- beneficial ownership simply means -who really owns the property-and I think that is what CRA would really be after. That being said, it is best to have the legal title be the same as the beneficial ownership -will avoid questions from CRA and hassles from a legal perspective -perhaps a Lawyer could comment on this

 

[GarthChapman]

QUOTE (ssteckler @ Jan 9 2008, 11:41 PM) Navaz and Garth,

My JV partner plans to sell her interest after one year so the Beneficial Ownership concept won`t apply.

Thanks for your input,

Stephen


So if she is truly selling and will have no ongoing interest in the property I stand by my earlier comments. Thanks for the clarification.