Is Land Transfer Tax Payable on Gifts of Property in Ontario?

Many parents want to put a home into a child's name for little or nothing. The question is usually whether Ontario land transfer tax is charged on a gift, and if so on what amount.

The answer turns on what is actually passing between you, not on what the document is called. This article explains how the tax is calculated, where gifts get taxed anyway, and what the separate income tax picture looks like.

The basic rule for gifts

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. If no consideration of any kind passes, though, no tax is payable because the tax is calculated on a nil value.

So a true gift with nothing given in return, and no mortgage taken over, generally produces no land transfer tax. The word "gift" on the paperwork is not what does the work. What matters is whether anything of value is given.

When a gift is still taxed

The Act defines value of the consideration broadly: the gross sale price, plus any benefit of whatever kind conferred as part of the arrangement. A promise to pay a debt, a payment back to you or another benefit can all be relevant, so do not assume that "one dollar" or "love and affection" settles the question.

The most common trap 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.

Where tax is payable, provincial rates apply in brackets for agreements after November 14, 2016, registered on or after January 1, 2017.

Rates and exemptions can change, so confirm the current figures before relying on them. Some municipalities, Toronto being one, also charge their own land transfer tax on top of the provincial tax, so ask whether one applies where the home is.

Exceptions that may apply

• Spouses and former spouses: a transfer between them is exempt where the only consideration is assuming a registered mortgage, or where it is made under a written separation agreement or a court order.
• Estates: a transfer from a personal representative to a beneficiary in satisfaction of the beneficiary's interest in the estate is not taxable.
• Changing how the same owners hold title, such as tenancy in common to joint tenancy, is not a conveyance, so no tax applies.
• Family farms: Ontario offers exemptions for certain transfers of farmed land between family members.

Adding a child to title without a spouse relationship is not covered by a simple rule. The result depends on what consideration or assumed mortgage passes and whether beneficial ownership changes, so confirm the facts with a lawyer or the Ministry of Finance.

Income tax on a gifted home

Land transfer tax is only half the picture. 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.

The child is generally deemed to acquire a gifted property at fair market value. If the home was your principal residence, you must report the sale and designate the property on Schedule 3 to claim the principal residence exemption. A transfer of capital property to a spouse or common-law partner, where both are resident in Canada, is generally deemed made at cost, though the transferor can elect out on their return.

If the home is a matrimonial home, a spouse generally cannot sell or mortgage 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.

Do not understate the price, and what to do next

Making false or deceptive statements, for example understating the price, is an offence under Land Transfer Tax Act s. 6. The fine is at least the greater of $1,000 or 50% of the tax that should have been paid, up to twice that tax, and a court can also impose 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.

• List everything passing between you and your child, including any mortgage.
• Ask an accountant what capital gain, if any, the gift triggers.
• Check whether a spouse's matrimonial home rights are involved.
• Have a lawyer prepare the transfer and the land transfer tax statements accurately.

Frequently asked questions