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Hello! I am a new user and I am sorry to impose but I have a 2 part question that I need your advise on. Before the questions I am going to give a little back ground info on subject. My parents have a plot of land that that they have agreed to sell me and the wife for the sum of 22000. Since we are unable to pay that sum right now and we intend to sell the land anyway, they agreed to hold off on being paid until we sell the property. My questions are as follows:

1) What is the best way of transfering the land deed over to me? Could I go to the notary and have them add me and my wife to the deed and then sell the property and give my parents their 22k and we take the rest for our down payment on a home. Will this method be the best method to help ease the taxes we will pay on the sale of the property? Or do you recommend another way.

2) Because we hope to sell the house and use the profit as a down payment on our first home is there a way to sell our land and not lose 40% of our profit to taxes?


Please donot think we are against paying taxes because we are not we just would like to get as big a downpayment as we can.:)


Thank you for your time and knowledge
Ford123
 

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If you intend to sell the land right away, you will face very little, if any, capital gains tax - instead, it is your parents who will need to declare the gain and pay any tax.

Be aware that you will pay capital gains tax on the gain over the fair market value OR, if the land is sold to you for less than FMV, on your actual gain. So, for this kind of transaction, you should make sure you pay the full FMV on the land.

Alternately, your parents could give you the land. I'm not suggesting they do this - it's just that sometimes people think they will be clever and sell land or other property to a non-arm's-length party for less than FMV but it just ends up costing them more in tax at disposition (because you need to pay tax on the increase in value from either the FMV, if no money changed hands or if you paid more than FMV, or the actual purchase price, if money changed hands). Clear?
 

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I think you and your parents need to talk to a lawyer or tax accountant. There are all kinds of complications with these schemes (See other threads)

Even if your parents "gift" you the land, they will have a "deemed disposition" at fair market value, and they will owe capital gains as if they sold it. Meaning they will be out of pocket until you sell and re-imburse them.

Taxes will be based on "Fair Market Value" If $22K is less then FMV they will still be taxed as if it was sold at FMV.

Adding you to title is also a transfer of 50% ownership at FMV. Parents will owe capital gains taxes on this "deemed disposition" of half the value of the property. You could try to make a case that the joint ownership is for administrative convenience only, and does not represent a benefical transfer to you until the later sale. But it may not be accepted. I have only seen this discussed in the context of estate planning, where the intent is to keep it in joint ownership until the parents die. Another problem with this arrangement, is that if parents are deemed to retain beneficial ownership, then it is the parents who will have to pay the whole tax bill when you subsequently sell it.

If it's farm land there are all kinds of special rules exemptions to above - all the more reason to consult an expert.

In any case the capital gains tax cannot be "40% of your profit". You are taxed on only 50% of your capital gains: and the amount of tax you pay on that will be based on your marginal rate. If your marginal rate was 50% you would still owe 25% of your profit in taxes.
Frankly it would be easier for your parents to sell it on the open market, pay their taxes and legal fees, and make you a gift of their net profit.
 

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In my province, you have to sign a document swearing to the fair market value of the land, and when you are dealing with non-arms-length parties, this will be looked at closely for tax purposes. The parents might make a declaration of trust that ensures that they are on the hook for only a certain amount of the tax, and the adjusted cost base for the purchasers is set appropriately. If CRA thinks you are fudging the FMV, they will ding the parents for the full FMV *and* keep your adjusted cost base at the low amount (so that you pay more cap gains when you sell later on). I don't know about Quebec, but assume that is the case there as well.

This is something that definitely should go to a lawyer.

Like a few US states, Quebec has a civil law system. Their land transfer system is notoriously complicated, and I think that they also have a land transfer tax (called a "duty"?). You may want to run the numbers on whether you will benefit from your parents' gift.

If I remember correctly, Quebec doesn't use the Torrens land registration system, which is what some of the other provinces use as a way of regulating transfers of ownership -- with an insurance fund that underwrites any errors made by the Land Titles Office. I would proceed with great caution here.

Good luck, whatever you decide to do!
 

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Why do you need to get the land transferred to your name? If you are going to sell it anyway, why not just get your parents to sell it (with your help), they keep whatever amount they need for taxes (if they want) and then they can just give you the net proceeds.

If nothing else you will save the lawyer fees for the land transfer.

Unless, I'm missing something.
 

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Discussion Starter #6
Thank you!!!!

Thank you all for taking the time out of your busy lives to answer our questions. We now know the best way to proceed.

Thank you very much.
 

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Hello OhGreatGuru, Thank you for your input. Can I ask you for some more information on this statement, Frankly it would be easier for your parents to sell it on the open market, pay their taxes and legal fees, and make you a gift of their net profit. How can I go about doing that?

Thank you for your time.
 

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Hello OhGreatGuru, Thank you for your input. Can I ask you for some more information on this statement, Frankly it would be easier for your parents to sell it on the open market, pay their taxes and legal fees, and make you a gift of their net profit. How can I go about doing that?

Thank you for your time.
Alternative to sprocket's approach;

Dear Mom & Dad. Thank-you for your very generous offer. But I have looked into it and realized it creates some real tax complications for you, and results in some pointless legal & real estate costs in transferring ownership twice (first to me and then to some purchaser). I suggest you sell the land for the best price you can get, deduct your legal, real estate, and capital gains tax costs, and cut me cheque for the balance if you are still willing.
 

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"cut me cheque for the balance if you are still willing."

and this will be non-taxable to you.

In the way you describe, it is possible that part of the disposition proceeds will be taxed twice.
 

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depends on what your parents teach you...

clearly most are both working and not really taking care of their kids. send them to day care, leave them in the car, forget them at ballet. why even have kids if you aren't going to spend time with them.

then again, this thread already highlights my inability to be politically correct...
 
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