Rental income taxation - multiple owners

[Moose77]

Hi,

Recently together with my wife and her parents (recent immigrants) we bought a condominium. The intention was to have her parents reside in the condo. They put down a 20% down-payment and the plan was for them to pay all the costs associated with the condo. The reason my wife and I are on the title is that they wouldn't have qualified for a mortgage otherwise.

However, after seeing how much the units in the building can be rented for, my in-laws are contemplating the option to rent the unit and continue living in the apartment they have rented for the past two years. They would get ALL the rental income and pay ALL the associated costs (mortgage, property taxes, condo fees). However, this poses a problem from a taxation point of view: can they declare 100% of rental income while owning only 50% of the property? Naturally, I wouldn't want to declare 50% of the revenue on our income since we get 0% on the money. Even if we declare 50% of the rental income, and they reimburse us for the tax loss, it still wouldn't be optimal, as we would be taxed at a much higher tax rate.

Is there a way to solve this problem? Can we declare 0% rental income and 0% rental costs while they declare 100% rental income and 100% of the costs (mortgage interest, maintenance)?

Looking forward for expert advice

Thanks, Theo

[kcowan]

The general rule is that the income is split based on the capital contribution. Since your capital contribution was 0, your income portion is also 0. You are essentially guaranteeing the mortgage. That might be worth something if you want to ascribe a value to it. CMHC charges a fee for mortgage insurance. But with 20% down, no insurance is needed.

[Moose77]

The general rule is that the income is split based on the capital contribution. Since your capital contribution was 0, your income portion is also 0. You are essentially guaranteeing the mortgage. That might be worth something if you want to ascribe a value to it. CMHC charges a fee for mortgage insurance. But with 20% down, no insurance is needed.

Thank you kcowan. Yes, we are essentially guaranteeing the mortgage, however we do appear on the title. When completing T776E (Statement of Real Estate Rentals), one question is "Your percentage of ownership". If my in-laws each put 25% percent, won't all the subsequent calculation, including the portion of net income, be made on the basis of fractional ownership? Or do each of them simply put as half the "Share of net income(loss)", regardless of percentage of ownership (calculations at line 9369)?

Thanks again!
Theo

[OhGreatGuru]

I believe the answer is that you do not have "beneficial ownership" at this time in CRA's terms. You are on title only for estate planning and/or administrative reasons (in this case as mortgage guarantor). As kcowan says, you invested no capital, and are contributing nothing to the mortgage payments or maintenance, so you have nothing "invested". Your in-laws should each report 50% ownership IMHO.

[MoneyGal]

I believe the answer is that you do not have "beneficial ownership" at this time in CRA's terms. You are on title only for estate planning and/or administrative reasons (in this case as mortgage guarantor). As kcowan says, you invested no capital, and are contributing nothing to the mortgage payments or maintenance, so you have nothing "invested". Your in-laws should each report 50% ownership IMHO.

[Moose77]

I believe the answer is that you do not have "beneficial ownership" at this time in CRA's terms. You are on title only for estate planning and/or administrative reasons (in this case as mortgage guarantor). As kcowan says, you invested no capital, and are contributing nothing to the mortgage payments or maintenance, so you have nothing "invested". Your in-laws should each report 50% ownership IMHO.

Thank you for the advice, that was very helpful.
Best regards,
Theo