Adding a Child to Your Home Title in Ontario: Risks to Know

Many older parents consider adding an adult child to the title of the family home. The reasons are understandable: to make things simpler later, to avoid probate or to have help managing the property. But a change in title is a real transfer of ownership, and it carries risks that are easy to overlook.

This article outlines the main issues in Ontario: land transfer tax, capital gains, family law, co-ownership and loss of control. It does not replace advice on your own situation.

Land transfer tax on the transfer

Ontario land transfer tax is normally calculated on the value of the consideration, meaning the amount paid for the land, including liabilities the transferee assumes such as a mortgage. The Land Transfer Tax Act has no general exemption for gifts of land, but if no consideration of any kind passes, no tax is payable because the tax is calculated on a nil value.

The exception to watch is a mortgage. When land is gifted subject to a mortgage the recipient takes on, land transfer tax is payable on the amount owing at registration, whatever the relationship between the parties. The Act also defines value of the consideration broadly, to include any benefit of whatever kind conferred as part of the arrangement.

The tax result of adding a family member other than a spouse depends on what consideration or assumed mortgage passes and whether beneficial ownership changes. The Ministry of Finance invites questions at LTTGeneral@Ontario.ca. Changes to the Land Transfer Tax Act have also been proposed, so the rules are worth re-checking before you act.

Capital gains and the principal residence

A person who gifts property, or transfers it to a non-arm's-length person for less than fair market value, is deemed to have received proceeds equal to fair market value. That can trigger a capital gain when a home is gifted to a child. The child, in turn, is deemed to acquire a gifted or inherited property at fair market value.

Your home may still be sheltered if it is your principal residence. If you sell, or are considered to have sold, a home that was your principal residence, you must report the sale and designate the property on Schedule 3 to claim the principal residence exemption. Whether the exemption covers everything depends on the facts, such as whether the home was always your principal residence, so ask an accountant before you transfer.

Different rules apply to a spouse or common-law partner. Capital property transferred to a spouse or common-law partner, where both are resident in Canada, is generally deemed transferred at cost, so no gain arises immediately, although the transferor can elect out on their return.

Family law, creditors and co-ownership

Once your child is on title, they are a co-owner, and that has consequences you do not fully control. Joint tenants, tenants in common and others with an interest in Ontario land may be compelled to make or suffer partition or sale, and any person interested in the land may apply to court for partition or sale. That can include a co-owner you did not expect to be in dispute with.

Your child's own circumstances, such as changes in their relationship or finances, may also be worth thinking about. How far that could affect the home depends on how title is held and on the facts, and a lawyer can assess that for you.

Your own family matters too. If you are married and the home is your matrimonial home, no spouse may dispose of or encumber an interest in it unless the other spouse joins in or consents, has released their rights in a separation agreement, or a court order authorizes it. A transaction that breaks this rule may be set aside. Adding a child without your spouse's involvement could therefore be challenged.

Loss of control and what happens at death

Once a child is on title, they are a co-owner, so how selling, refinancing or downsizing would work depends on how title is held and on the facts, and it is worth confirming with a lawyer. Gifts of this kind are also hard to undo.

At death, a surviving joint tenant updates title with a Survivorship Application under Land Titles Act s. 123. But if a spouse dies owning a matrimonial home as a joint tenant with someone other than their spouse, such as an adult child, the joint tenancy is deemed severed immediately before death and survivorship does not operate.

Property that passes by survivorship is excluded from the estate's value for Estate Administration Tax, which is $15 for every $1,000 (or part) on estates over $50,000. But whether a child on title truly takes the home as an owner, or holds it for the estate, is fact-specific, and avoiding probate this way is not a safe assumption. Separately, for land transfer tax, the Act contains a general anti-avoidance rule: if a transaction is an avoidance transaction, its tax consequences are set as is reasonable to deny the tax benefit.

What to do next

• Write down why you want your child on title and what other options might meet that goal.
• Check whether there is a mortgage on the home, since it can bring land transfer tax.
• Ask an accountant about capital gains and your principal residence designation.
• Think about your child's marriage, debts and business risks.
• If you are married, speak with your spouse before any change.
• Get legal advice on title, your will and a power of attorney before signing.

A lawyer can also explain alternatives, such as a will or a power of attorney, that may meet your goals with fewer risks.

Frequently asked questions