# Do I owe capital gains tax?



## anon100 (Dec 18, 2016)

I have somewhat of a unusual situation and stressed about it.

I was living with my family in the years 2005 to 2009 in a home, the house was under my brother's name. He made the mortgage payments. The family moved in 2009 to a new house. The old house was sold and a new one was purchased. For some reason they put 99% of the house under my name and 1% under my brother's name. He paid all the payments including mortgage, utilities, etc. 

I went to live out of the country in 2011 and later transferred the title out of my name. Now my worry is would I be liable for capital gains tax from the year I moved out of the country to the time I transferred the title out of my name? I did not make single penny from this transaction. 

My brother also deducted the mortgagor interest on his income tax. It's the only property the whole family owned. 

Is there anyway I can show that only the title was under my name and I actually did not own this house?


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## AltaRed (Jun 8, 2009)

Some missing information here. Was the title 'tenants in common' with specific ownership division on title? Or 'joint tenancy' where there is no divided interest on title (otherwise known as an 'undivided interest'? If the latter, there is no formal division of ownership on title, although you would have a side agreement of some kind showing division of ownership.

There is something odd here in the so called transfer of 99% of title to you... e.g. an attempt to assign this house as a principal residence to you and to escape cap gains tax on an investment property (since your brother was paying all the operating expenses anyway AND declaring them on his income tax return), and then taking it back when it was apparent it could no longer be a principal residence to you once you left the country. Depending on title arrangements, you may be totally in the clear, but it is your brother who will have cap gains tax due when he sells the property someday, for the full period starting from 2009.


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## DavidW (May 27, 2016)

I've had some discussions with CRA regarding principal residence leading me to think the nature of the operating expenses claimed might be a consideration to the situation. Was it only repairs claimed or were capital improvements and depreciation also claimed sort of thing. I don't know about the title issue.


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## Davis (Nov 11, 2014)

Was this house in Canada? If so, ypur brother could not deduct mortgage interest. That can be done in the US, but not in Canada. Mortgage interest can be deducted by the owner of a rental property who is reporting the rental income from the property. If the house is in the US, you should pose your question on an American board.


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## AltaRed (Jun 8, 2009)

DavidW said:


> I don't know about the title issue.


Davis has a good observation....is this Canada or the USA? I agree that in Canada, mortgage interest can only be deducted if the property is a rental property (with rental income) and in the taxpayer's name. The title issue is important because IF the title was 'tenants in common', then that would be 'evidence' to CRA with respect to who claims rental income/expense (perhaps no one). And there would have to be loan agreements in place, e.g. a lender will not lend out X$ in mortgage to an owner with a 1% interest. Or did the bro lend the money to the OP to provide 99% title? There are more questions than answers in the OP's post.


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## anon100 (Dec 18, 2016)

AltaRed said:


> Davis has a good observation....is this Canada or the USA? I agree that in Canada, mortgage interest can only be deducted if the property is a rental property (with rental income) and in the taxpayer's name. The title issue is important because IF the title was 'tenants in common', then that would be 'evidence' to CRA with respect to who claims rental income/expense (perhaps no one). And there would have to be loan agreements in place, e.g. a lender will not lend out X$ in mortgage to an owner with a 1% interest. Or did the bro lend the money to the OP to provide 99% title? There are more questions than answers in the OP's post.



The house is in Canada. He did not loan me any money. All the money went out of his account.


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## AltaRed (Jun 8, 2009)

anon100 said:


> The house is in Canada. He did not loan me any money. All the money went out of his account.


Still have not addressed 'title' observations I have brought up. Tenants in common? Or Joint residency? How was 99/1 percent ownership established? Without further information, I will maintain the house was never your principal residence and your brother cannot deduct mortgage interest against rental income he never received. IOW, this was always an investment property for your brother and all cap gains are attributable to him from the 'get go'. You likely need a tax accountant to sort this one out.


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## OhGreatGuru (May 24, 2009)

I agree with Altared. The whole setup sounds screwy. The only way they could make a 99/1 split would be with a tenancy in common, with some written agreement as to the division of ownership.

I hate to sound suspicious, but this sounds like a scheme by your brother to minimize his taxes by claiming only 1% ownership, while leaving CRA to figure out where the 99% owner had gotten to.

Either that, or it was an intentional advance on your inheritance by your parents, out of which you have now received nothing. In which case someone needs to examine brother's books.


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## marina628 (Dec 14, 2010)

There are a few reasons to do it , maybe to claim a first time home buyers credit or use some RRSP.I know when a cosigner is needed the banks/lawyers generally do a 99% to 1% ownership usually with the legit owner having the biggest share.My brother in law has done this for both of his kids and was first I heard of it.If you were on title for lending purposes only I would not worry about it especially if you have never claimed income on it yourself.I think the issue is you need to understand exactly what your brother has been doing but if it is as you say that there is only one family home at a time and your brother also lives in this home he also gets capital gains exemptions on his personal residence.


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## marina628 (Dec 14, 2010)

I am assuming family home one was sold and another purchased in 2009 and at that point op became 99% owner ,which is why I said maybe they wanted to put less money down so claimed 1st time buyer which also gets the land transfer tax credit and he may have used RRSP funds for down payment too.I am also assuming brother has always been part of the family living in this home


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## anon100 (Dec 18, 2016)

OhGreatGuru said:


> I agree with Altared. The whole setup sounds screwy. The only way they could make a 99/1 split would be with a tenancy in common, with some written agreement as to the division of ownership.
> 
> I hate to sound suspicious, but this sounds like a scheme by your brother to minimize his taxes by claiming only 1% ownership, while leaving CRA to figure out where the 99% owner had gotten to.
> 
> Either that, or it was an intentional advance on your inheritance by your parents, out of which you have now received nothing. In which case someone needs to examine brother's books.


yea it's tenancy in common. I really don't see how anyone minimized tax here. Everything ended up on me without me making a penny. Why would claiming 1% save him taxes? I don't understand.


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## Eclectic12 (Oct 20, 2010)

^^^^

From what is written ... the only tax savings seems to be writing off the interest. I am not clear on how he can do that if no money was changing hands for rent.

Then too, while the primary residence exemption (PRE) might be available to him to shield the capital gains - claiming all the mortgage interest as I understand it, means the entire house is a rental where depending on timing, may mean he can't claim the PRE at all.

The tax book I read when renting a room out years ago said the amount of space had to be limited as well as no capital cost allowance claimed to keep the PRE intact. A small part of the house being rented meant only that % of the mortgage, utilities etc could be written off on my tax return.


Cheers


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## anon100 (Dec 18, 2016)

Eclectic12 said:


> ^^^^
> 
> From what is written ... the only tax savings seems to be writing off the interest. I am not clear on how he can do that if no money was changing hands for rent.
> 
> ...


Maybe he did not claim it. The place was not rented. I just assumed that he deducts it cause it's what US home owners do and I assumed it's the same in Canada. I don't really talk to him. But my main concern is that if I am liable for capital gains tax. It's the only property the family owned and still it's the only property the family owns. It's cruel that I would have to pay such a big capital gains tax without having made a single penny.


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## AltaRed (Jun 8, 2009)

Why do you think it is so cruel? It seems to me you got to live free for a long time.

The real issue is whether the time you were 99% on title without proper purchase and sale (and loan) agreements in place is really a case of this being your principal residence... and between the time you left and were taken off title, any increase in cap gains is attributable to you. What was the appraised value in 2011 when you left the country? And what was it when you were taken off title? That is the piece you "could" be vulnerable for.... but I still maintain there is something shoddy about the title change arrangement. Without knowing what the brother did, or claimed on income tax, etc. there is no way for any of us to really speculate.

There is a lesson here. Do not do business with family. It's an age old proverb and one I have stuck too 'forever'.


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## OhGreatGuru (May 24, 2009)

anon100 said:


> Maybe he did not claim it. The place was not rented. I just assumed that he deducts it cause it's what US home owners do and I assumed it's the same in Canada. I don't really talk to him. But my main concern is that if I am liable for capital gains tax. It's the only property the family owned and still it's the only property the family owns. It's cruel that I would have to pay such a big capital gains tax without having made a single penny.


Thank-you for the clarification. Mortgage interest on principal residences is not tax-deductible in Canada. The trade-off is that there is no capital gains on principal residence.

The 99/1% split seems to be a fiction of some kind.

If CRA asks, tell them: "I never had beneficial ownership; I never had any money invested in it; I never received a dime from the sale; therefore I have no capital gains. Talk to my brother if you have any further questions."


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