Should you sell your home to your child for $1?

Never at the cost of your own financial health; an alter-ego trust could be an alternative, suggests Certified Financial Planner Jason Heath

Ruth Saldanha 31 January, 2019 | 6:00PM
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Ruth Saldanha: Rather than leaving legacies and wills a lot of parents prefer to help out adult children at various life stages. And one method of doing this includes selling a home for $1. What are the tax implications of this and is there any alternative? Certified Financial Planner Jason Heath of Objective Financial Partners is here with us today to talk about this. Jason thank you so much for joining us.

Jason Heath : Thanks Ruth, thanks for having me.

Saldanha : Does it make sense to sell you home for $1 to your child.

Heath : It depends its sort of loaded question. I think first and foremost I want to make sure that if I were going to consider something like that I wasn’t compromising my own retirement. I do come across people that want to help out their kids so much that they are willing to put their own finances at risk. One of the implications and one of the reasons that people will look to sell a piece of real estate for example to a child at a low price like that is to try to avoid capital gains tax. If a home is somebody's principal residence and is either their only piece of real estate or is a piece of real estate that they live in on an ongoing basis. It's probably going to be tax free. So selling it for $1 doesn’t save any income tax. If it happens to be a cottage or a rental property or some sort of secondary property those properties are typically subject to capital gains tax. Selling a property for $1 doesn’t get rid of that capital gains tax. When you transfer a property at a low value like that to a family member it's deemed to take place at the fair market value. You can sell it for $1, doesn’t mean that it's going to get rid of the capital gains tax on whatever the true and actual market value is.

Saldanha : What about other taxes such as the land transfer tax or even probate fees.

Heath : That’s one option. I mean land transfer tax particularly in the city of Toronto for example is a big deal because you've got provincial and city land transfer tax same applies in some other parts of Canada. And when you sell or transfer a property for a low value or even for nothing. Something that’s often called a transfer for natural love and affection, you can avoid land transfer tax. So there are definite ways to save on taxes. Even on death in certain provinces particularly here in the province of Ontario probate can be a very expensive death tax, if you will. And moving assets out of your own name may save probate taxes it may or may not be the right thing to do for other reasons. But certainly tax reduction is one opportunity that parents have.

Saldanha : An alternative that you suggested was the alter ego trust. Can you explain that to us?

Heath : There are other options that involve kind of half way giving but not fully giving a piece of real estate for example to a child. A senior who's over the age of 65 who is single can set up what's called an alter ego trust. A couple where both partners are over the age of 65 can set up something called a joint partner trust and basically, it's a way to move an asset into a trust structure, whereby it can avoid probate taxes for example. There are other types of trusts that sometimes people can consider as a way to pass along an asset, but still maintain control over it and I think it's really important to consider those options with a lawyer, with an accountant, with other professionals that can help you understand even if you can give your property to a child for $1, should you?

Saldanha : Thank you so much for joining us today Jason.

Heath : Thanks for having me Ruth.

Saldanha : From Morningstar I'm Ruth Saldanha.

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Ruth Saldanha

Ruth Saldanha  is Senior Editor at Follow her on Twitter @KarishmaRuth.


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