[londoncalling]

I understand that currently capital gains are exempt on a principal residence in Canada. We are in a situation where we could purchase my FIL's property which is his principal residence but do not want to take a mortgage on the property to do so. We are considering having the terms of the sale be structure as a partial sum is paid now and the remainder in installments. We can afford to do so without taking loans. Any concerns in doing a sale in this way? In particular, would the future installments be considered taxable for my FIL? I have a few other questions, thoughts and concerns but have tried to keep it simpler for now but would be able to provide additional information if needed.

 

[AltaRed]

There is no cap gains taxes payable on a principal residence sale to another person. All you need is a personal mortgage (or demand loan) signed between yourself and your FIL on the terms of the sale, e.g. the amount up front and the payment schedule thereafter. The demand loan can have an interest rate assigned to the outstanding balance and if so, then the interest payments will be taxable income to FIL.

It would be most fair to have this structured as a VTB (Vendor Take Back) mortgage to protect FIL and his estate (and to other potential beneficiaries of his eventual estate). There are numerous boiler plate mortgage templates out there to be used.

Land title will have to be changed to you and that may, or likely will, result in land transfer taxes paid by you, the buyer. The VTB mortgage should be registered on title as well.

 

[gardner]

I agree that a vendor take back is going to be the way to go on this. I think for a non-arms-length loan (within the family) the CRA will dictate a lower limit on the interest rate -- it's on the order of 1% or 2% that the mortgage will have to yield to the vendor. It is set each quarter by the CRA, but hasn't changed in yonks, though I read somewhere it is set to increase in July this year.

EDIT: And I would get a formal appraisal by a licensed appraiser to establish the sale price, again, to protect FIL's estate and potential beneficiaries.

 

[londoncalling]

Thanks to both of you for your prompt and helpful comments.

I will look into this a bit further. Appraisal is already underway. I figured that there may be some interest requirements for the loan which would be taxable. It is possible that we could finance a substantial amount of the purchase with our current investments. We have already spoke to our mortgage broker who has advised to use our home equity to take out a mortgage or HELOC. We were hoping to give him the money instead of the bank as his cost of living is more than his current income. The difference would cover his costs without depleting his remaining savings too quickly. Will have to do some more research on VTB as well.

 

[twa2w]

Thanks to both of you for your prompt and helpful comments.

I will look into this a bit further. Appraisal is already underway. I figured that there may be some interest requirements for the loan which would be taxable. It is possible that we could finance a substantial amount of the purchase with our current investments. We have already spoke to our mortgage broker who has advised to use our home equity to take out a mortgage or HELOC. We were hoping to give him the money instead of the bank as his cost of living is more than his current income. The difference would cover his costs without depleting his remaining savings too quickly. Will have to do some more research on VTB as well.

It sounds like you are buying his property and keeping your own property. Is the intent to have your father-in-law continue to live in the property?
If so, you will be responsible for capital gains on any future increase in value. This may or not be a concern but it may make more sense to leave the property in the FIL name so it remains exempt under the PRE. There are a few ways to do this and help him out financially if that is the intent of this exercise.

Of course you will also want to ensure any steps you take do not complicate relations with any other siblings ie beneficiaries.

 

[AltaRed]

The OP having a principal residence of his own is a wrinkle I didn't see until post #4. Depending on longevity of the FIL, it could make more sense for the FIL to keep title and for the OP to become the mortgagee in a reverse mortgage scenario at fair rates if that could be done.

 

[Retiredguy]

Depending on your Province/Territory you may be exempt from Property Purchase Tax. In BC a exemption to the PPT applies to family transfers parent to child (and also includes the spouse of the child).

Exemptions for the Transfer of a Principal Residence (gov.bc.ca)

 

[londoncalling]

We certainly do not want to create any friction amongst family members as part of the business arrangement. To provide some additional context:

This is not our first time going through the transfer of assets from parent to one child. My family went through as similar scenario where property was sold to one of the children and it was on the condition that the other siblings were not opposed. My mother was very sure to call each child to see if they were interested in buying should she sell, as well as if they would be upset if it was sold, all before being told who the buyer would be. We were then again asked if we had any objections.

My FIL has 3 children and the others have indicated they do not want/cannot afford to buy at this time. My wife and I are not interested in owning it jointly nor has that been proposed by the other family members. I usually don't like to mix business and family but the reality is we will be subsidizing his costs otherwise until he sells or passes on. We believe has a greater opportunity of complicating estate settlement and family hardship than going the proposed route of sale now. Our preference would have been to own the property at a later date but that would less likely be possible if someone else were to buy.

My FIL no longer occupies the residence as he is dealing with some medical issues and has been relocated to a private care home. As such he will not be returning to the property. We are hoping to sell the property before year end to alleviate his fears regarding how he will manage to pay for his new place and care going forward. His care costs will begin to eat into his savings rather quickly and it's possible we will need to subsidize his costs until the sale. Ideally, we would sell on the open market but I do not want to see him jump on a lowball offer. Fortunately, my SIL has POA so that he does not get taken for a ride. One of the reasons she was chosen as POA was to provide additional arms length should we take over ownership it would provide that extra layer of transparency. The family consults on every decision as it pertains to his situation and there haven't been any issues to date. We don't foresee one going forward but it is always best to protect all parties involved in case there is a misunderstanding or hurt feelings.

It is early days as we have just sought out an appraisal and are awaiting its completion. I will look into provincial legislation for the province of Saskatchewan as I am not sure if family transfer exemptions apply here. We do have some time to figure this out and already have another person who may be interested in purchasing the property should it be made available. Lots to consider and a lot of work to be done along the way. Should we or someone else buy his place he will be provided a lump sum (the down payment) and a steady flow of income (the mortgage payments) that would cover the cost for his new place and care for the remainder of his days should that be soon or many years from now. There will be some additional challenges going forward as he is not that knowledgeable in the matters of finance. I appreciate the feedback thus far as well as the PMs on this topic with additional resources and assistance.

Cheers

 

[twa2w]

Thanks - that provides some clarity. I was assuming the FIL was still living in the house and this was to help him with bills.

Agreed, it is probably best to sell to a third party on the open market as you suggest. This avoids the legal costs of you purchasing it and then incurring more costs to sell it a few months later - and dealing with it on taxes.

What you can do is utilize the FIL's savings as the house is listed. If it takes longer than expected to sell, you can meet with family and arrange to 'loan' your FIL a set amount of money each month with the agreement that you will get repaid from the sale. To protect yourself, you could have them sign an agreement to that effect - ensure all sign it and that you have a paper trail for the funds. Or you could as the " lender", register a line of credit against the home and then advance in stages as needed, to the FIL each month to cover any expense shortfall.

Not sure what RE is like in your area but likely best to sell before fall and winter set in, as you don't want a vacant house then. (or deal with renting it to keep it occupied )

Best of luck - sounds like you have good family dynamics so that helps a ton.

 

[londoncalling]

Thanks @twa2w

I reread post #8 and wanted to clarify that if we were to purchase the property we would own it longer term. If we were to go forward we would likely hold onto it into retirement. It is his primary residence but it would become a recreational property for us as it is at a lake. Whoever buys the property would likely have the existing home removed and build new. There are a lot of new subdivisions and there is still demand but we would prefer an older more established area. We know most of the neighbours as there is not alot of turn over.

We have already put in place a plan to subsidize his cost longer term if needed and that would be done up as a loan to be paid in full upon sale of the property. The place has been vacant for several months already as we were waiting for nicer weather before proceeding. We held off on the assessment to keep it as current as the listing date. The snow has just recently disappeared and several seasonal cabins have just been reopened. There is a good mix of seasonal and year round residents in the area. Whichever way things go we will want to have it resolved before winter comes.

As noted, the family dynamic definitely makes things easier. If there was dispute or conflicts it would be unbearable to navigate. Had another family member expressed interest we would have let them proceed.