Gifting Real Estate to Your Children in Ontario: Taxes & Legal Considerations

In Ontario, you generally cannot avoid capital gains tax and land transfer tax when gifting real estate to your child during your lifetime — with one key exception: if the property is your principal residence and it's mortgage-free, both taxes can be waived. Investment properties and cottages don't get this break. Below, we break down the principal residence exemption, your transfer options, and the tax and legal considerations for each.

When it comes to real estate, there's no way to sidestep the rules. If you're considering gifting property to your child during your lifetime, it's important to know that land transfer tax and capital gains tax are unavoidable parts of the process. Gifting real estate is more complex than simply handing over the keys; it requires proper documentation and the guidance of a real estate lawyer to ensure everything is done legally and correctly.

There's good news, though. According to nbc.ca, you won't need to pay tax on any capital gains if you are gifting your principal residence. If you want to gift your lakeside cottage or another investment property, however, think it over carefully - capital gains on second homes are taxable.

Capital gains explained from moneysense.ca.

What Is the Principal Residence Tax Exemption?

According to the Government of Canada, when you sell your home or when you are considered to have sold it, you do not have to pay tax on any gain from the sale because of the principal residence exemption. This is the case if the property was solely your principal residence for every year you owned it.

If the property was your principal residence, you may be exempt from capital gains tax under the principal residence exemption. In Ontario, if no money changes hands, the land transfer tax is also waived.

How to Transfer Real Estate to Your Children During Your Lifetime (If It Isn't Your Primary Residence)

Transferring real estate to your children during your lifetime can be accomplished in several ways, but each method comes with important legal and tax considerations.

1. Gifting the Property

The simplest way is to gift the property outright to your child. This involves transferring ownership without financial compensation. However, in Canada, this is considered a "deemed disposition," meaning you are treated as if you sold the property at its fair market value.

If the property has increased in value since you acquired it, you may owe capital gains tax on the appreciation, unless it is your principal residence and qualifies for the principal residence exemption. If the property is mortgage-free, there will be no Land Transfer Tax. If there is a mortgage on a principal residence being gifted, Land Transfer Tax is payable on the amount of the mortgage being assumed, as it is considered "consideration."

2. Adding Your Child to Title

You can add your child as a joint tenant, making them a legal co-owner. This allows the property to pass directly to your child upon your death, bypassing probate. However, this also triggers the same tax implications as gifting, including potential capital gains tax and land transfer tax, if the residence is not your primary residence. We have more information on this in a recent blog post: Helping Your Child Buy a Home.

It also affects your ability to sell or mortgage your home, as you will now need your child's written consent.

3. Selling at Fair Market Value

You may choose to sell the property to your child at fair market value. This is treated as a regular sale for tax purposes and will also trigger capital gains tax if the property is not your principal residence.

Key Considerations Before Gifting Property to Your Children

• Any transfer of real estate must be properly documented with a real estate lawyer to ensure legal compliance.
• There is no way to avoid capital gains tax or land transfer tax when gifting property, except in limited cases — such as when the property qualifies as your principal residence and it is not encumbered by a mortgage.
• Professional advice from legal and tax experts is highly recommended before proceeding, as improper planning can result in unexpected tax liabilities or legal complications.

Contact

Brian McMurter is a real estate and estate planning lawyer at McMurter & Associates in Whitby, helping Durham Region, Ontario residents with estate planning and real estate law. 

Contact McMurter & Associates Monday to Friday, 9 a.m. to 5 p.m. at info@mcmurter.com or call 1 800 756 7138 or 905 666 9200 to schedule a consultation.

Disclaimer: This article provides general information about Ontario law and is not a substitute for legal advice. Please speak with a lawyer about your specific circumstances before making decisions about real estate law and estate planning.