# Land transfer tax



## frankdearn (Aug 18, 2011)

I appreciate all the feedback. Let me just clarify things. My parents own 2 properties in toronto. One property is their principal residence, the other property was used for rental income. Their is no mortgage. 10 years ago I started living in the home. Now they want to gift me the house. I will be a first time home owner. Different real estate lawyers have told me that their is no land transfer tax on a gift, period. My lawyer told me that their is no Toronto land transfer tax however their is a Ontario land transfer tax. He wants me to put get three real estate appraisals and use the lowest one. I need to know who is right? I was told by another lawyer to get a trust declaration and put the houses value as nil. No monies are changing hands.

Any help would be appreciated.


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## OhGreatGuru (May 24, 2009)

Land transfer tax is based on the Fair Market Value in the case of a gift (or even a sale below market value). While this may seem unfair, Land Transfer Tax helps pay for the cost of running a Land Registry. Otherwise we would all have to pay more income tax.

Your parents need to establish the FMV for their capital gains purposes, and frankly it's in your interest to establish an officially recognized "deemed acquisition cost" in case it does not remain your principle residence and becomes subject to capital gains tax in the future.

Ontario has a rebate for land Transfer Tax for first-time home buyers. It's not clear to me how you would complete the forms in the case of a gift - suggest you get clarification from the government http://www.rev.gov.on.ca/en/tax/ltt/index.html


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## kcowan (Jul 1, 2010)

IANAE but I believe you need to have the house appraised and pay the transfer tax on that value. Because you have occupied the house, you might find it another loophole if you can find an appropriate tax accountant.


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## MoneyGal (Apr 24, 2009)

DO NOT establish a transfer value of $1 or $2. 

Here's why: you need to pay the land transfer tax on the FMV, no matter what your costs of acquisition are (so, even if they are zero).

However, if you acquire a capital property at costs of less than FMV, your capital gain is calculated on the costs of acquisition, not the FMV. 

So if you were to acquire this house for $1, your parents pay capital gains cost on the FMV. You also pay land transfer tax at FMV. 

And then assuming the house is not your principal residence, and you go to sell, you pay capital gains tax on your actual costs of acquisition - that is, $1 - instead of FMV at the time of acquisition. So the gain would be taxed twice: once when your parents pay it, and then again when you pay it. 

This issue does not usually arise with principal residences but it always arises with cottages. Have properties change hands at FMV. Don't try and be cute and buy properties from a family member at less than FMV. It doesn't help you or them in any way.


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## marina628 (Dec 14, 2010)

I would probably price it about the same as the MPAC statement plus 5-10k.If i were to apply that to my home i still will be under value $20,000 or so but wont send off any red flags.


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## frankdearn (Aug 18, 2011)

*land transfer tax*

I appreciate all the feedback. Let me just clarify things. My parents own 2 properties in toronto. One property is their principal residence, the other property was used for rental income. Their is no mortgage. 10 years ago I started living in the home. Now they want to gift me the house. I will be a first time home owner. Different real estate lawyers have told me that their is no land transfer tax on a gift, period. My lawyer told me that their is no Toronto land transfer tax however their is a Ontario land transfer tax. He wants me to put get three real estate appraisals and use the lowest one. I need to know who is right? I was told by another lawyer to get a trust declaration and put the houses value as nil. No monies are changing hands.

Any help would be appreciated.


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## K-133 (Apr 30, 2010)

MoneyGal said:


> DO NOT establish a transfer value of $1 or $2.
> 
> Here's why: you need to pay the land transfer tax on the FMV, no matter what your costs of acquisition are (so, even if they are zero).
> 
> ...


Why are the parents paying a capital gain on something they're not receiving money for? The OP on the other hand may be subject to a capital gain on the initial acquisition as this is not the gifter's primary residence.

No disrespect, you seem to know more than I on this, I'm just a bit confused at how someone can be taxed on income/gains they did not receive.

How about an agreed payment plan (rent to own), spreading the gain for the parents over numerous years while minimizing cashflow impacts on the OP. The question of whether the OP decides to actually pay or not can be a a separate issue. Though this may also cause issues in the event of death of the parents.


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## OhGreatGuru (May 24, 2009)

_Why are the parents paying a capital gain on something they're not receiving money for? The OP on the other hand may be subject to a capital gain on the initial acquisition as this is not the gifter's primary residence.

No disrespect, you seem to know more than I on this, I'm just a bit confused at how someone can be taxed on income/gains they did not receive._

Precisely to prevent people from passing on their capital gains to their children, friends, or relatives, without paying capital gains tax. CRA considers there is a "deemed disposition" at FMV in such non-arms length deals. While there is no "estate tax" as such in Canada, the capital gains tax serves as a partial substiute.

The parents purchased an asset (the second residence). It gained in value. They are not taxed on this gain until it is disposed of. But you can't postpone that tax indefinitely by "selling" it for less than FMV. It would be the same if they had bought securities instead of a house.

The actual sale price can be $1 or $2. But the deemed disposal/acquisition cost has to be FMV. And this needs to be established and recorded in some supportable fashion. It would seem fair to the parents that OP at least pay them what the tax cost is going to be, but this could be done informally, and needn't be part of the bill of sale. 

As for strategies to spread the gain over a period of years, i'm not qualified to comment. They might have to talk to a tax planner. However, the way our tax system is structured, with a ceiling on the uppermost tax bracket, you might have to spread it out over a long time to see any benefit. And this would create a delay in the parents simplifying their financial affairs.


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## MoneyGal (Apr 24, 2009)

OhGreatGuru said:


> The actual sale price can be $1 or $2. But the deemed disposal/acquisition cost has to be FMV. And this needs to be established and recorded in some supportable fashion. It would seem fair to the parents that OP at least pay them what the tax cost is going to be, but this could be done informally, and needn't be part of the bill of sale.


Unless this is and remains a principal residence for the new owner, this strategy WILL cause the capital gain to be taxed twice - once in the hands of the parents (who pay the gain at the deemed disposition price - let's say $500K - and then AGAIN by the second owner at their disposition - based on their actual costs of acquisition of $1.) So the ENTIRE gain from $1 to $500K would be taxed TWO times. Don't do this. Don't sell properties at less than FMV.


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## OhGreatGuru (May 24, 2009)

I'm afraid I don't follow that argument Money Gal. If he inherited the property, he would have a deemed acquisition cost equal to the deemed disposition proceeds, even though his actual acquisition cost was zero. So how is a gift different? As long as he has a record (through the land transfer tax documents and a copy of his parent's capital gains declaration) of the "deemed value" at time of transfer, I don't see why CRA should consider his acquisition cost to be zero.

PS. From CRA T4037:

_*Property you inherit or receive as a gift *
If you receive property as a gift, you are generally considered to have acquired the property at its fair market value (FMV) on the date you acquired it. ..._

There is a bit of a problem with the CRA definitions of "deemed acquisition" and "deemed cost", because they both include the phrase "even though you did not actually buy it."
So buying it for $1 may contradict this. But I am pretty sure this is dealt with somewhere in a guide on non-arms length transactions. Maybe you just have to be careful to identify it as a "gift" in the paperwork, not a "sale" for a nominal sum.


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## MoneyGal (Apr 24, 2009)

I will come back and provide actual links. 

Here is the issue. When you receive a property AS A GIFT, your deemed costs of acquisition are FMV. 

When you BUY property (for $1), you no longer have a deemed acquisition cost. Instead, you have an ACTUAL acquisition cost. 

When you dispose of a property for which there is a capital gain, the gain is calculated on your ACTUAL acquisition cost where there is an actual acquisition cost. 

If you acquire the property at a deemed cost of FMV, your gain is calculated on the FMV.

If you acquire the property at an actual cost of $1, your gain is calculated on your actual cost of acquistion - so on an ACB of $1, not the FMV of the property when you acquired it. 

Do not sell properties to your relatives for $1.

NOTE: all of my comments (written super-quickly) presume the original case, which involves parties who are connected (not operating at arm's-length)


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## MoneyGal (Apr 24, 2009)

Here is a link - it's just the first one I could find on this tax rule, which is the "inadequate consideration" rule:

http://www.mycasite.com/for_web/pages/articles/tax_part_2/pdfs/104_attribution_sale_property.pdf

Note the LAST sentence on page 2.


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## kcowan (Jul 1, 2010)

What should have happened was a deemed disposition when OP started renting the property for 0 (or whatever). Then the rental income would have gone down. And CRA would have noted that the declared rental income went down while the property continued to be depreciated.

That is why there are differing opinions about how to proceed. They need to go back to the beginning and figure out the proper way to do it! This requires a tax accountant, not a lawyer.


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## frankdearn (Aug 18, 2011)

What??????????????

I have no issue doing whats legal and right. According to every real estate lawyer but 1 their is no land transfer tax period. None to the city of Toronto or the province of Ontario period. The 1 lawyer has told me this is incorrect and that I need to pay the Ontario land transfer tax. That even though their is no monies changing hands I still need to pay this. This is a house not a cottage. Other lawyers have told me their is nothing to be paid and that I ahve nothing to worry about. That I can have my parents fill out a trust declaration(whatever that is ) and that it. I have been living in the hous now for 12 years and at the end of the day this is more like a title transfer than anything.


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## OhGreatGuru (May 24, 2009)

MoneyGal said:


> Here is a link - it's just the first one I could find on this tax rule, which is the "inadequate consideration" rule:
> 
> http://www.mycasite.com/for_web/pages/articles/tax_part_2/pdfs/104_attribution_sale_property.pdf
> 
> Note the LAST sentence on page 2.


That's an interesting Catch 22 MG. Seems unreasonable, but who said tax law had to be reasonable. Maybe they do it deliberately toa) discourage transactions for less then FMV; and (b) make sure if the seller slips under their radar (by non-reporting) and doesn't pay their Cap. gains tax, they can still collect from the buyer many years later. I guess the moral is be sure it is identified in the paperwork as a gift, not a purchase for $1.


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## OhGreatGuru (May 24, 2009)

frankdearn said:


> ...
> I have no issue doing whats legal and right. According to every real estate lawyer but 1 there is no land transfer tax period. ... The 1 lawyer has told me this is incorrect and that I need to pay the Ontario land transfer tax. ... Other lawyers have told me ...that I can have my parents fill out a trust declaration(whatever that is ) and that it....


This is beyond me now. Maybe you need to ask the land Registry - but they don't get paid to tell you how you might be able to avoid the taxes.


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## kcowan (Jul 1, 2010)

frankdearn said:


> I have no issue doing whats legal and right...


Then hire a tax accountant to sort this out for your parents...


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## MoneyGal (Apr 24, 2009)

This is such a confusing thread. 

When there is a change of beneficial ownership, the applicable taxes - capital gains and land transfer - are payable. The fact that the property is a gift makes no difference. The tax payable is calculated on the fair market value of the house. If you put the value down as "nil," or $1 or $2, that doesn't help, because that is not the FMV of the property. 

If the parents put the house in trust for their son, this is not a change of beneficial ownership. I'm not clear that the OP realizes that a house held in trust for him by his parents is not a house that he owns. Also, it does not change the fact that tax is due on the disposition (when that occurs) - it just postpones it.


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## arie (Mar 13, 2011)

*Ltt*

what is all this market value for the purchaser ; for his parents there will be capital gains tax ; for him as a principal residence there is no capital gains tax when he comes to sell

as for Ltt as a first time homebuyer there is an exemption from LTT depending on the value of the home ; however there is an inter family gift of the home with no mortgage on the home and no transfer of funds no LTT


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## OhGreatGuru (May 24, 2009)

arie said:


> what is all this market value for the purchaser ; ... ; for him as a principal residence there is no capital gains tax when he comes to sell
> ....


That's only true if it remains his personal residence until he sells it. If it should cease to be his principal residence for a time during his peridod of ownership, the capital gains exemption will apply only proportion to the period for which it was his Principal residence. In order to calculate this future (potential) tax liability, he needs to have a record of his deemed acquisition cost.


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## financialnoob (Feb 26, 2011)

frankdearn said:


> What??????????????
> 
> I have no issue doing whats legal and right. According to every real estate lawyer but 1 their is no land transfer tax period. None to the city of Toronto or the province of Ontario period. The 1 lawyer has told me this is incorrect and that I need to pay the Ontario land transfer tax. That even though their is no monies changing hands I still need to pay this. This is a house not a cottage. Other lawyers have told me their is nothing to be paid and that I ahve nothing to worry about. That I can have my parents fill out a trust declaration(whatever that is ) and that it. I have been living in the hous now for 12 years and at the end of the day this is more like a title transfer than anything.


It seems like you already know the answer you want to hear so why bother asking the question to everyone?


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## MoneyGal (Apr 24, 2009)

arie said:


> however there is an inter family gift of the home with no mortgage on the home and no transfer of funds no LTT


I do not believe this is correct. My references: 

http://www.rev.gov.on.ca/en/bulletins/ltt/10_2000.html

http://www.rev.gov.on.ca/en/bulletins/ltt/2_2005.html

My understanding of this issue (NOT a lawyer) is that if beneficial ownership of the house is passed to him, LTT is calculated and payable on the FMV of the house. Link one establishes there is no exemption for gifts. Link two establishes the meaning of "consideration" for the purposes of calculating the value upon which the LTT is calculated.


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## Charlie (May 20, 2011)

In BC there's an exemption for transfers between certain family members of property if the property will be the principal residence of the transferee. My understanding is that this is not so in Ontario. Transfers using trusts also work in BC -- but, not so in Ontario. 

Are the lawyers you're talking to in Ontario? 

My advice is, if an Ontario real estate lawyer is willing to give you his professional opinion that it can be done, and back it with his E&O insurance, and adequately explain to you the implications of this trust declaration you should go with his advice, rather then ours. And kindly let us know how it worked. I'm sure many of us would like to know.


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## Charlie (May 20, 2011)

....and from the frequently asked questions bit on the Ont website
http://www.rev.gov.on.ca/en/bulletins/ltt/10_2000.html



> The Act does not exempt gifts of land from land transfer tax. However, if on a conveyance there is no consideration passing in any form whatsoever (either directly or indirectly) between the parties, then no tax is payable. Since the rate of tax is applied to the "nil" value of the consideration, the resulting computed tax payable is also "nil"....
> 
> Where there is no consideration passing whatsoever, the consideration will be set out as "nil" in paragraph 4 of the LTT affidavit. The relationship between the parties (e.g. father to son, brother to sister, friend to friend) and the reason for the transfer are to be set out in paragraph 5 of the affidavit.


so it looks like arie was right! Tax applies, but since the FMV * of the consideration * is NIL, the tax is NIL. 

or so says my 5 minute google research.


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## arie (Mar 13, 2011)

MoneyGal said:


> I do not believe this is correct. My references:
> 
> http://www.rev.gov.on.ca/en/bulletins/ltt/10_2000.html
> 
> ...


money gal

i am a lawyer and perhaps you should re read the first bulletin carefully 

in any event you must go to a lawyer to complete this ; why in the world are you asking the general public about this ; the other blogger is correct ; have your lawyer deal with this


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## Charlie (May 20, 2011)

we discuss things here. It's how we learn.

Nobody suggested he not engage a lawyer. However, it seems it was his lawyer who told him he'd be liable for the tax and instructed him to get appraisals. So this was a useful discussion. I learned.


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## financialnoob (Feb 26, 2011)

arie: Considering the OP mentioned that several lawyers had already disagreed about the question, I think it's a bit silly to act as if your interpretation is absolute simply because you're a lawyer.

Perhaps you could point out a specific reference in the bulletin that proves your point instead of just proclaiming your profession as proof enough that you're right.


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## arie (Mar 13, 2011)

*Ltt*

Charlie has already answered your question by referring to the section of the bulletin put out by the Ontario Ministry 

if money gal had read the first part of the bulletin she linked to it said the same thing 

attempting to get legal answers on a general blog is not really very productive ; if he wants legal opinions then he should consult a lawyer ; .


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## kcowan (Jul 1, 2010)

He needs a tax accountant before he gets a lawyer. They will tell his parents how much trouble they might be in based on their prior treatment of the 2nd property.


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## financialnoob (Feb 26, 2011)

arie: I appreciate your point of view. I'm just getting a kick out of your response as it seems to overlook the fact that the OP did, in fact, speak with a lawyer. Multiple actually. That's what led to the confusion and the OP posting to a general forum in the first place...


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## arie (Mar 13, 2011)

financialnoob said:


> arie: I appreciate your point of view. I'm just getting a kick out of your response as it seems to overlook the fact that the OP did, in fact, speak with a lawyer. Multiple actually. That's what led to the confusion and the OP posting to a general forum in the first place...


i think his problem is he is over consulting ; he must find a lawyer that specializes in real estate law and go with it ; consulting 10 different lawyers is not the answer: 

do they all practice in the area of real estate ?? speaking to a lawyer that does mainly family law will not get a correct answer

have they all been given the same facts to give an opinion on or are their other facts we do not know that went into some of the opinions he was given

did consulting a lawyer mean calling a legal office and speaking to the legal assistant ???

it is a fairly clear answer to his question about LTT which is confirmed by the bulletin that was posted ; any real estate lawyer I know is aware of this unless there are other facts not set out


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