Parent's Home in a Child's Name: Capital Gains in Canada?

Many parents want to put their home in an adult child's name, often to simplify things later or to help the child qualify for a mortgage. The first worry is usually tax: does the change in title trigger capital gains?

The answer turns on what the arrangement really is. This article explains the bare trust concept, the principal residence points that matter, and the questions to settle with a lawyer or accountant before you change title. It does not say that any particular transfer is or is not taxable, because that depends on the facts.

This article covers Canadian federal tax law, which applies in every province.

Legal title and beneficial ownership are different

In a bare trust, the trustee is only an agent with legal title. The beneficiary is the beneficial owner and the trustee is the legal owner. A trustee generally qualifies as an agent when the trustee has no significant powers, cannot act without the beneficiary's instructions, and only holds legal title.

So if a child is put on title but the parent remains the real owner and the child simply follows the parent's instructions, the arrangement may be a bare trust. If the child is meant to become a true owner, it is a different situation. Which one you have is a question of fact.

Does a bare trust avoid tax on the transfer?

It is tempting to think a bare trust is a way around capital gains, but it should not be treated as one. A bare trust describes an arrangement where the person on title is an agent. It is not a tool that changes who the real owner is. If the child is truly the new owner, the tax result is a separate question that needs advice on your specific facts.

What CRA does say is that, for a reportable bare trust, all income, capital gains and capital losses from the trust property should be reported on the beneficial owner's tax return. The trustee does not report them on the trust's T3.

The principal residence exemption and beneficial owners

For the principal residence exemption, ownership includes being a beneficial owner of the property, alone or jointly with another person. So the beneficial owner behind a bare trust can look to the exemption. The exemption has additional conditions, including that the home must meet the usual residence tests, so it is not automatic.

If a trust itself wants to designate a property as its principal residence, no corporation (other than a registered charity) or partnership can have been beneficially interested in the trust.

Will you have to file a T3 or report anything?

Whether you have to file anything depends on whether your arrangement is a bare trust and whether an exclusion applies, so it is worth confirming with a lawyer or accountant. Under s. 150(1.31)(b), the deemed-trust rule does not apply where the legal owners are related individuals and the property is real property that would be the principal residence of one or more of them. CRA says this covers a parent on title to allow a child to obtain a mortgage. Related persons include individuals connected by blood relationship, marriage, common-law partnership or adoption. The guidance does not address an adult child on title as its own example.

• An individual who holds real property for a spouse or common-law partner is excluded if it would be the owner's principal residence.
• For taxation years ending on or after December 31, 2024 and before December 31, 2026, bare trusts need not file a T3 or Schedule 15, and CRA said it would likewise not require bare trusts to file for 2023.
• Reportable bare trusts are subject to the rules for years ending on or after December 31, 2026.
• Not filing when required can lead to a penalty, likely $25 a day with a $100 minimum and $2,500 maximum where no tax is unpaid.

What to do before you change title

• Write down who is meant to own the home and who controls decisions about it
• Ask whether the child is a true owner or only holding title for you
• Confirm that the home is your principal residence and who will live there
• Ask a lawyer or accountant about the tax result of the transfer on your facts
• Check whether any exclusion from the bare trust rules applies
• Keep records of the arrangement and of any reporting

Tax outcomes and the legal effect of title can both change with small differences in the facts, so it is worth getting advice before anything is signed.

Frequently asked questions