Before You Transfer an Interest in Your Home

Before you transfer an interest in your home, there are some things that you should know. Many adults transfer an interest in real estate to help an adult child purchase his or her first home. They may also transfer a share in the home in a belief that it will avoid probate fees and so the child can help with paying bills and with caring for an elderly parent. Generally, the courts in B.C., take the view that though it is reasonable for a parent to make a gratuitous gift (or one without compensation) to a young child (under a “principle of advancement”), it might not be reasonable for a parent to make such a gift without compensation to an adult child. In this way, the courts attempt to protect the interests of adults who, due to a feeling of dependency or isolation, might care a little too much for their child or be unduly influenced by him or her. Often a trusted banker or notary will advise you to seek independent legal advice as a way to help.

Property Transfer Tax

Property Transfer Tax (the “Act”) is payable on all real estate transfers in B.C. unless the transfer is deemed exempt. If the transfer is not exempt, the amount of taxes that you will pay on the fair market value of the property  (or what a willing buyer is prepared to pay now), as approximated by BC Assessment, is as follows: 1% on the first $200,000.00 of fair market value; 2% on the portion of fair market value over $200,000.00 up to $2 million; 3% on the portion of the fair market value over $2 million up to $3 million; and, for residential properties, 5% of the portion of fair market value over $3 million. Tax exemptions are available for the following family transfers if the person you intend to transfers the property to is a “related individual” as defined in the Act.

Your Homeowner’s Insurance Policy

Transferring an interest in your home to someone else may void your homeowner’s insurance. The Insurance Act, under statutory provisions, provides that the insured must promptly give notice in writing to the insurer of a change that is material to the risk, and within the control and knowledge of the insured. It also states that if the insurer (or its agent) is not notified of a change, the contract is void. You should inform your insurance company in writing of any changes to persons having an interest in your home.

The effect of Joint Tenancy and Tenants in Common

Adding your adult child as a joint tenant to your home can have unintended consequences. Joint tenancy means that upon your death, your child who is registered on title as a joint tenant and who survives you gains full ownership of your home. Some problems with this approach are as follows: first, once your child becomes a joint tenant,  you will need his or her consent to sell or mortgage the property; second, if your child enters into a marriage-like relationship (for at least 2 years) with another person, his or her spouse gains a 50% interest in your child’s share of the property;  third, making your child a joint tenant may limit the value of the estate available to others in your Will; and, fourth, your home may be open to actions from creditors including unpaid taxes to CRA.

Your Mortgage Agreement

If you have a mortgage on your home, first check with your lender to ensure that they agree with your decision to grant an interest in your home to someone else. Transferring an interest in your property without your bank or credit union’s consent may trigger a default of your mortgage. A short call to your lender (or mortgage broker) explaining your intentions may solve many unexpected difficulties.

Capital Gains Taxes

Transferring an interest in your home can trigger capital gains taxes. When deciding whether taxes apply to a transfer, the CRA weighs factors such as “legal ownership” (of having your name on title) and “beneficial ownership” (or if ihte property is really being held by another for your benefit). Speaking with a tax accountant can help you to get an opinion on the effect of a transfer.  In some instances, you may be able to gain a ruling from the Income Tax Rulings Directorate on your behalf.

About the Author
Paul Williams is a notary public in Burnaby, British Columbia. If you have additional questions, please feel free to reach out to him directly (604) 245-2244. When he is not working, he enjoys reading a good book and taking a walk with his wife around the neighborhood.

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