[boingboing]

Firstly, i will reach out to an accountant about this matter but i want to get some knowledgeable insight from some of you beforehand in case i might be missing a simple solution.

My parent has a rental property. I want to give her a large amount of money so she can do renovations to her property but i would like those expenses she does on the property to be deductible on her return. Since i am not connected to the property at all (e.g. not a co-owner) I cant claim anything on my own tax return.

The problem is, if i give (gifted) money to my mother -- lets say $70,000 -- for her rental property expenses then i assume it would be considered income on her tax return and she will be taxed on it fully, even though i was already taxed on that $70,000 (on my return).

So would this strategy work to solve my dilemma: Since credit cards are simply a loaning process and therefore not considered income to the user of said credit card, one could use this loaned credit card money to do property renovations and then those expenses will be tax deductible for that year. If that is the case then, using this same approach is it possible for me to simply loan my parent $70,000 under the condition of 0% interest for the next 20 years, and upon payback of the principal in 20 years the interest rate is 0.00001% or something?

Would that be a legal way to give my mom the $70,000, avoid her having to report extra income (since it is a loan), and use this money on her rental property so as to claim property tax deductions for the year?

 

[redsgomarching]

gifts are not taxable.

another option is to loan, however, you will have to record interest income on your return.

 

[OnlyMyOpinion]

Agree, gift would not be taxable income in her hands as you seem to think. There should be no attribution to you (could be if gift was to spouse/children). Bank/FI may require that you explain the proposed transfer (FINTRAC requirements).
What she does with the money is entirely up to her though. Spending $70k to renovate a rental seems over the top.

 

[AltaRed]

Agree it is way over the top to spend that kind of money on a rental reno, but that aside, the best arrangement would be for her to get her own 'arms length' business loan/HELOC from a commercial lender. An alternative is for you to formally loan her the money at a 'going' mortgage rate, in effect, hold a mortgage (can be a promissory note) for this rental at reasonably realistic interest rates, e.g. prime + X. The interest she pays would be deductible on her tax returm and be reported as income on your tax return. There is no way she can declare interest as a deduction on her tax return without it being reported as interest on the lender's return.

One other point: Your post suggests renovation expenses can be tax deductible for that year. That is not true. Renos (as compared to ongoing maintenance and repair) are capital items and go into the CCA pool, to be amortized over time. IOW, the renos being done cannot be deducted as an annual expense. Hopefully she has a plan to increase the rent to recover the investment and make money off it.

 

[OhGreatGuru]

Other have dealt with the tax issue, which is non-existent. But if your mother cannot finance these renovations and still make a profitable rental, she should sell this property, because it has, or will have, a negative cash flow. In essence you would be donating money to an unprofitable business.

 

[redsgomarching]

Wow I just noticed the 70k, I read as 7k.

Scratch that idea and use that as a downpayment for another.

 

[Rusty O'Toole]

How about you give her the $70,000 in return for a half interest in the property. You can set it up so she is in charge of renting the property, paying expenses, taxes etc and she gets all the income while you are the 'silent partner' so to speak.

The advantage of this is when the time comes (God send it is not for many years) and you inherit the property it will already be half yours. In the meantime there is nothing to prevent the both of you from working together on the project with the understanding that she will get the income.

I don't know the value of the property, if she has equity, if there is financing on it etc. I throw this out as an idea.

 

[AltaRed]

The problem with that is it is then likely the two owners will have vastly different ideas of when the property should be sold - especially due to the age difference and where the two owners are in their lives.

To ensure a certain percentage of ownership interest, it will have to be tenants-in-common title and there will have to be a process built in on how and when to sell it, i.e. it gets sold when one owner wants to sell? Sell at what? Appraised value? Right of first refusal? There are a host of issues with multi-owners that have to be addressed BEFORE such deals are entered into. Other than joint title by spouses, multi-ownership is fraught with complexities. I wouldn't touch anything like that with a ten foot pole.

 

[Eder]

HELOC or you will end up hating your parents. 70k sheesh...

 

[AltaRed]

The OP has been silent. Maybe the accountant rang his bell since the OP's post had a number of random disconnected thoughts?