Land Transfer Tax When You Gift Property to a Child in Ontario

Many parents want to put a home, or a share of one, into a child's name. It often feels like a simple family step, and people reasonably ask whether the province will charge tax on a gift.

The answer depends on what, if anything, the child gives in return, and whether a mortgage comes along with the property. This article explains how value is worked out, where exemptions exist and what to check before you sign.

Is there land transfer tax on a true gift?

Ontario land transfer tax is normally calculated on the value of the consideration, meaning the amount paid for the land, including liabilities the person receiving it assumes, such as a mortgage.

The 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.

The word "any kind" matters. The Act defines the value of the consideration broadly, as the gross sale price plus any benefit of whatever kind conferred as part of the arrangement. A transfer described as a gift, but paired with a payment or other benefit, may not be a nil-value transfer.

When a gift still triggers tax

The most common problem is a mortgage. When land is gifted subject to a mortgage that the recipient takes on, land transfer tax is payable on the amount owing at registration, whatever the relationship between the parties.

For context, the provincial rates for agreements after November 14, 2016 are 0.5% up to $55,000, 1.0% from $55,000 to $250,000, 1.5% from $250,000 to $400,000 and 2.0% over $400,000, with a rate of 2.5% over $2,000,000 where the land contains one or two single family residences. Because the tax is worked out on the mortgage amount, a large mortgage can mean a real bill even though no cash changes hands.

• Understating the price or hiding a payment is not a safe way to reduce 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, up to twice that tax, and possible imprisonment of up to two years.
• Where unpaid tax results from fraud or wilful default, the Minister may assess a penalty of the greater of $500 and 25% of the unpaid tax.
• The Act also has 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.

Exemptions that may apply

Several exemptions are written into the system. Most apply to specific situations rather than to parent-to-child gifts in general, so check whether yours fits.

For spouses, the definition includes married spouses and unmarried couples who cohabited continuously for at least three years or are in a relationship of some permanence and are parents of a child. That exemption does not extend to a transfer from a parent to a child.

The income tax side of gifting a home

Land transfer tax is only one layer. Under the Income Tax Act, 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, for their part, is deemed to acquire a gifted property at fair market value. If the home was your principal residence, you must report the sale or deemed sale and designate the property on Schedule 3 to claim the principal residence exemption. A cottage or rental property can raise different questions, so an accountant can confirm your position.

Transfers to a spouse or common-law partner are treated differently: capital property is generally deemed transferred at cost where both are resident in Canada, though the transferor can elect out on their return.

What to do next

Rates, exemptions and refunds can change, and the province has indicated proposed amendments to the Act, so confirm the current rules before you transfer. Whether a municipal land transfer tax applies depends on where the property is, so it is worth confirming with a lawyer.

• Find out whether any mortgage or line of credit is registered on the property and whether the child will take it on.
• Write down every payment or benefit the child is giving, even indirect ones.
• Get a current estimate of the property's fair market value.
• Ask an accountant about the capital gain and principal residence designation.
• Ask a lawyer whether a different structure, such as adding the child to title in part, changes the tax answer.

Frequently asked questions