Land transfer tax is something that is paid upon the purchase of property and is paid to the province at the closing date. This tax is based on the amount paid for the land as well as any mortgage or debt assumed upon purchase. If you are curious about what land transfer tax would be on your property, you can find a land transfer tax calculator online to give you an idea.
It is a common wish that property should stay in the family; therefore, many homeowners choose to leave their homes to their children. However, when it comes to inherited property, there are still tax considerations.
If a piece of land is given as a gift, then that makes the amount paid zero, which will result in land transfer tax not having to be paid. However, there are rules concerning residency, and if you gift your home to your children but continue to use the home as your primary residence, there may be repercussions.
If you plan to live in your home until you pass away and leave the property to your kids in your will, then they will usually be exempt from land transfer tax. However, it will be exempted only if the recipient is using your home as a primary residence and not as a rental or vacation home.
If you are planning to transfer the home to your child and they haven’t owned a property before, then they may be eligible for a first-time home buyer’s rebate on land transfer tax, which may leave them completely exempt. Some parents sell their home to their children at a low price. If this is the case, you can use a land transfer tax calculator to see how much tax your child would be paying on the home. However, selling at a low price to your children is only a good idea if they intend to use the home as their long-term, primary residence due to capital gains tax.
Capital gains taxes are another important consideration when leaving a property to your children. Capital gains taxes would be paid if you made a profit on selling your property. So, if you sell or transfer your home to your child for a very low price, or give it as a gift, and they then decide to sell the home, they would end up paying capital gains tax on the profit they made from the sale, which can end up being huge.
When planning the transfer, gifting, or bequeathing of any large asset to your children, it’s best to seek the help of a lawyer. Since issues of tax and inheritance are quite complex, there is a certain amount of risk involved.
For questions about land transfer tax, mortgages, and transferring property, please contact one of our mortgage experts today!