If you've come to that point in your life when your children are contemplating renting or entering the housing market, then you've come to the right place! Our friends at the Financial Post have written a great article on the different options available to you and their tax implications. Read on for more information ...
Jonathan Chevreau, Financial Post · Mar. 10, 2011 | Last Updated: Mar. 11, 2011 2:21 PM ET
Many Baby Boomers have paid-for homes, while their grown children are contemplating entering the housing market. Instead of letting them rent during their first foray after leaving the nest, it's tempting to buy a second "investment" property with Junior as the main tenant.
Fully 10% of Canadian parents are considering this, according to TD Canada Trust, but you need to be aware of the full tax and estate-planning consequences.
There are at least four options, according to chartered accountants Kathy Munro and Caryn Walt, who wrote an insightful analysis in the Winter 2011 edition of PricewaterhouseCoopers' Wealth and Tax Matters.
Using the example of a $250,000 condo, Option 1 is buying the condo in your own name and having the child pay you rent. Assume the parents are in the top 46% tax bracket. But if they already have a principal residence for tax purposes, any capital gains on the second property - the one being rented by the child - will not be tax-free for the parent/owners.
You and your spouse are considered one family unit, which gets only one principal residence. So if the condo rises to $450,000 at your death (or sale) the capital gains tax will be $46,000 (half the $200,000 gain x 46%). The condo will also be subject to probate fees as high as 1.5% in Ontario or 1.523% in Nova Scotia.
Please pass this information along to friend or family who may find it useful and as always please feel free to contact me for information about the Barrie real estate market.
Sincerely,
Peggy Hill
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