Gifting a House to Your Child in Ontario: Title and Tax Issues

Many parents want to put a house in an adult child's name to help them out, simplify an estate or keep the home in the family. The paperwork looks simple, a transfer on title, but the decision touches land registration, land transfer tax, income tax and family law all at once.

This article explains how a gift of a house generally works in Ontario and where the surprises tend to be. It is general information, not advice on your situation, and the details turn on how the home is owned and what is owed on it.

What a gift of a house involves

Giving a house to your child means changing who is on title. Ontario's land registry is online only, and land documents are registered electronically through Teraview by authorized account holders. Anyone can search, view and download current and historical property records, such as a parcel register, through OnLand for a fee.

Before anything is signed, it helps to settle the basic questions:

• Will your child go on title alone, or will you stay on as a co-owner?
• Is there a mortgage or other debt that stays on the property?
• What is the home worth today, and what did you originally pay?
• Is your child married or in a relationship, and will they live in the home?
• Do you plan to keep living there?

Land transfer tax on a gift

Ontario's Land Transfer Tax Act has no general exemption for gifts of land. However, if no consideration of any kind passes, no tax is payable, because the tax is calculated on a nil value. Land transfer tax is normally calculated on the value of the consideration, which includes liabilities the new owner assumes, such as a mortgage. The Act defines that value broadly, as the gross sale price plus any benefit of whatever kind conferred as part of the arrangement.

The mortgage point is the one that catches families. When land is gifted subject to a mortgage the recipient takes on, tax is payable on the amount owing at registration, whatever the relationship between the parties. The provincial rates for agreements after November 14, 2016 are set out below.

Some transfers are exempt from land transfer tax. Transfers between spouses and former spouses can be exempt where the only consideration is assuming a registered mortgage, or where the transfer is made under a written separation agreement or court order. Certain transfers of farmed land between family members, and from an individual to their family business corporation, are also exempt. Toronto has its own municipal land transfer tax on top of the provincial tax, so ask about it if the home is there.

Do not understate the price or leave out a mortgage to avoid tax. Making false or deceptive statements is an offence, with a fine of at least the greater of $1,000 or 50% of the tax that should have been paid, and possible imprisonment of up to two years. The Act also has a general anti-avoidance rule that can deny a tax benefit from an avoidance transaction. Land transfer tax rules are also under proposed change, so the rates and exemptions should be confirmed before you proceed.

Capital gains: the tax that is easy to miss

For income tax, a gift is not treated as free. 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, and that can trigger a capital gain when a home is gifted to a child. Your child, in turn, is deemed to acquire the property at fair market value.

If the house 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 the whole gain depends on how you used the property over the years, so an accountant should look at it before you transfer. A cottage or rental property raises different questions.

Transfers to a spouse or common-law partner follow a different rule. Capital property moved 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.

Losing control of the home

Putting the home in your child's name also means giving up some control. After the transfer, the home belongs to your child, or to you both, and their life affects it. Some examples worth thinking about:

• If your child marries and the home becomes their family residence, a spouse generally has an equal right to possess it, and your child cannot sell or mortgage it without the spouse joining in or consenting, unless an exception applies.
• On a marriage breakdown, the full value of the family home must be shared even if it was received as a gift.
• If you stay on title as a co-owner, any person interested in the land may apply to court for partition or sale.
• If you hold a matrimonial home as a joint tenant with an adult child and die, the joint tenancy is deemed severed immediately before death, so the right of survivorship does not operate.

Your own protection matters too. Whether you could keep living in the home, and on what terms, depends on your situation, so it is worth confirming with a lawyer. How other claims against your child might affect the property also depends on the facts. These are reasons to discuss alternatives, such as keeping the home and leaving it in your will, before you transfer.

What to do next

• Get a current copy of the title record and note any mortgage balance.
• Ask an accountant to estimate the capital gain and the principal residence position.
• Confirm land transfer tax, including any municipal tax, before you sign.
• Talk with your child about their relationship status and plans for the home.
• Ask a lawyer whether a gift, joint ownership or a will better meets your goals.

Adding a family member to title, other than a spouse, can have land transfer tax consequences that depend on what consideration or mortgage passes. A lawyer can confirm the position for your facts.

Frequently asked questions