Putting Your Home in a Trust or Corporation in BC: What to Know

Some owners consider putting their home into a family trust or a company for privacy, estate planning or protection from claims. The idea sounds tidy, but the home is a special kind of asset with tax rules built around individuals.

This article covers the main questions to raise before you move title: your mortgage, property transfer tax, the principal residence exemption, family claims and disclosure. It is general information, and the right answer depends on your facts.

This article covers the law of British Columbia.

What moving title really means

Putting a home in a trust or company means transferring it to a different legal owner, such as a trustee or a corporation. A trustee holds for the benefit of others, and a person who holds an interest as a trustee does not form a true joint tenancy. Title offices also treat these owners differently: the online survivorship application, for example, is not available if an owner is a corporation, trustee or limited-partnership partner, and a legal professional should be contacted.

So even routine land title steps can become more involved once a trust or company is on title.

Your mortgage

Most mortgages are contracts with terms about who owns the property and what can change. A lender may need to consent to a transfer, and a transfer made without agreement could cause problems. Read your mortgage, then ask your lender and lawyer in writing before any transfer. Lender consent is a matter of your contract, so the answer varies.

Property transfer tax

The principal residence exemption from property transfer tax (code 05) requires that the transferee be a related individual of the transferor and a Canadian citizen or permanent resident, and the property usually must have been a principal residence for a continuous period of at least six months immediately before the transfer, though that period can vary. The definition of related individual lists people such as a spouse, child, grandchild, parent and grandparent. A trust or company is not on that list of people, so do not assume the exemption carries over. Ask a lawyer or accountant whether any exemption fits your transfer before you register.

• Land over 0.5 hectares, or not classified residential, is not fully exempt.
• When someone is added to title, the exemption applies only to the part of the interest coming from related individuals.
• Siblings are not on the related-individual list, though a family farm transfer to a sibling can be exempt under code 07 if the farm conditions are met.

Income tax and the principal residence exemption

For federal tax, a gift of capital property is treated as a sale at fair market value on the date of the gift, and for non-arm's length sales below fair market value, the proceeds are deemed to be fair market value. A change of use to or from a principal residence is generally a deemed disposition at fair market value. If you sold, or were considered to have sold, property that was ever your principal residence, you report it on Schedule 3 and Form T2091(IND).

There is an exception for transfers to a spouse or common-law partner, where you generally have no capital gain or loss and the recipient takes your cost, though you can elect out of the rollover. Whether a home owned by a company or trust keeps the benefit you expect from the principal residence rules is a question for an accountant before you act.

Family claims and disclosure

A trust or company does not automatically remove a spouse's rights. Family property includes property owned by at least one spouse and a beneficial interest of at least one spouse in property. On application by a spouse, the Supreme Court must make an order restraining the other spouse from disposing of property until the other spouse establishes that a claim will not be defeated, and the order may be made before notice is served. Moving a home shortly before or during a separation can therefore attract scrutiny.

On disclosure, land filings in BC can include a Land Owner Transparency Act declaration, as the survivorship filing does, bundled with the Property Transfer Tax Return and land title application. Whether further disclosure applies when a trust or company holds title depends on the structure, so it is worth confirming with a lawyer what must be disclosed for your particular situation.

What to do next

• Write down your goal and ask whether a simpler tool, such as a will or power of attorney, meets it.
• Read your mortgage and ask your lender about consent.
• Get an accountant's view on income tax and the principal residence designation.
• Ask a lawyer about property transfer tax, disclosure filings and family claims before any transfer.
• Keep records of the home's value and your use of it as a residence.

Frequently asked questions