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She gives her child her home
Jean-Guy and Murielle live with their son Philippe, who earns minimum wage. They plan to mortgage the house to him immediately because they want to live with their son for as long as possible and Philippe will eventually take care of them. The second son receives financial compensation on the death of the second parent.
“Even before the pandemic, this question was regularly raised: ‘Am I interested in moving my house immediately?’ People think that if they wait until death they will have to pay taxes,” notes Notary François Bernier, Director of Tax and Eastern Canada Estate Planning at Sun Life Global Investments.
“From a purely fiscal point of view, when we talk about tax laws, there is no incentive to give away or sell your property to your children while you are alive,” continues François Bernier.
Regardless of whether the parents give the house away, sell it to a stranger or inherit it, this also applies to the increase in value of the house. There are no taxes as it is the primary residence.
Patricia Besner, notary and tax specialist, vice president of tax strategies and succession at Desjardins Wealth Management
If the parents remain owners of the house but leave it to live and the child continues to live there, the main housing allowance remains.
Loss of Tax Credits
The notary and tax specialist François Archambault, director of the National Bank’s Private Wealth Center of Expertise from 1859, and his colleague Francis Brault, tax specialist and financial planner, checked all tax credits for people aged 65-70.
By transferring title to a child, the parent loses the federal accessibility credit, says Francis Brault. The maximum is $1250.
Parents could also lose the senior citizen grant in connection with an increase in council taxes. This subsidy of a maximum of $500, which is granted to owners aged 65 and over with a family income of up to $54,000, has been around for 15 years.
As for the state loan for senior home help and the loan for expenses incurred by a senior to maintain their independence, parents don’t lose them by becoming renters.
Do we have the means to give… or to receive?
Aside from wanting to help a child who is taking care of the parents in return, and to alleviate the potential stress of transferring ownership on the death of the parents, there is no valid tax reason for giving away one’s home of one’s alive , say the experts interviewed The press.
“For us it’s natural that we’re giving away the house because we no longer need the building, but do we need its value to finance our livelihood?” replies notary and tax expert François Archambault. Then of course it’s not a good idea to give your house away. »
François Archambault recalls that the most important asset in Quebecers’ heritage is not the RRSPs, but the home. For some, it’s even their retirement savings.
It’s nice to get a house for free, but the child must still have the means to pay for taxes, heating, maintenance, and major renovations.
Patricia Besner, notary and tax specialist
We have to agree on who pays them, she warns. The parents or the child in the supermarket?
When harmony goes, everything goes. Notary François Bernier advises to “plan for the worst”. “If I give the house away, do I still have the right to stay there? The donation or purchase contract must provide for a right of residence for the donor. »
“If my child decides to kick me out and I have not protected my right to live on the property, he would have the right to do so. »
Do parents have to pay their child rent? Who Pays for Cable and Internet? “I have to think about what I want to experience as a wealth donor for my child,” warns François Bernier.
To save on rent in CHSLDs
Nathalie and André prepare a plan so that Juliette, their 88-year-old mother, does not have to pay the full rent in a CHSLD. Juliette will hand over her house and investments to André during Nathalie’s lifetime.
This strategy is often mentioned by the clients of the consulted specialists The press. An unwise strategy, they claim. Pooring a vulnerable person is not a good idea.
First, who knows the date of their entry into a CHSLD? The senior must be undressed two years prior to entry for the plan to work.
Then, when the eldest gives away her house and has invested over $2,500, the plan fails. If she gives away all her savings but receives an old-age income from her former employer, the project also fails.
In financial planning, do we let people accumulate capital to cover their living expenses throughout their lifetime, and then at the end of their lives we would deprive them of their assets to obtain a CHSLD fee reduction? As a notary, I have a hard time with this concept.
Francois Bernier, Sun Life Global Investments
“People calculate that if we don’t do anything with the rental costs, we have nothing left as an inheritance,” observes François Archambault. But the person is not dead, they have needs. It is not because a person can no longer live in their home that they no longer have a social life and there are costs associated with it. »
“If I impoverish the person and they want to go to the hairdresser, get dressed, go to a restaurant, see shows, they have to ask their kids for money,” he continues. All this to get the lowest rent? »
justice between children
As a widower, Daniel wants to leave his house to his son Luc, who has chosen to live a nomadic life without a steady job, while his sister Ève is a doctor and his brother Stéphane is a dentist. Daniel hasn’t planned an inheritance for Ève and Stéphane because they don’t need it.
“Of course, the parents can decide to give the house to the child who will take care of it or to the one who needs it. But it’s a case that should be settled better while you’re still alive, because it becomes a dispute after death,” warns Patricia Besner.
The sense of injustice is a crucial issue in estate planning that should not be taken lightly.
“If I give just one of the children, will the others be very happy about it? How will I compensate them? You have to think about it. It can be the subject of significant family conflicts,” stresses François Bernier.
Some parents make the argument that the pediatrician doesn’t need this. But this kid decided to go to higher education, and the parents then decide to give preference to the one who drew their feet.
François Archambault, Notary Public and Tax Specialist, Director of the 1859 Private Wealth Management Center of Expertise of the National Bank
François Archambault observes that parents no longer want to help with inflation during their lifetime. “But the one who dragged his feet, does he have the means to pay the taxes and upkeep of the house? Maybe giving this child the house won’t help. »
A child who is struggling financially might also choose to mortgage the house they received. “Is that what your parents want? » asks the notary and tax expert.
According to Patricia Besner, there are three possible options, and each family must choose the best option to maintain harmony. The child receiving the house is asked to find the sums of money to compensate the others now or at the time of death. When this is not realistic, we accept the fact that we have given more to one than to the other. If this is not possible, the house is sold and the sum divided among the children.
“We help people with taxation, but we’re more emotional on that aspect. »
Give to his daughter who already owns
When he died, Roger bequeathed the family home to his wife of 50 years, Pauline, 76, who also paid for this bungalow bought in 1970 but did not legally own it… relics of another era. Pauline wants to give the house to her only daughter Sophie, who already owns an apartment. Does Pauline have to take on the capital gains for the 50 years that only her husband owned it? What will Sophie’s primary residence be?
Although the patriarchal system stripped Pauline of her claim to her home, she can still call it her primary residence for all the years she has lived there.
“The law states that if the house is transferred to the spouse after the death of the husband, the spouse has owned the house from the first day the husband acquired it,” says Francis Brault of the Private Administration of the National Bank in 1859 .
On the other hand, if the parent transfers the property to their child, but the child does not live there, that is not good planning, specifies Patricia Besner of Desjardins Wealth Management, because we will no longer be able to call this house your main residence, even if the parent continues to live there.
From a tax point of view, I have no advantage in leaving my house to my child who already has a primary residence during his lifetime, since the child must choose the primary residence. It is better to wait until death or place of residence.
Francois Bernier, Sun Life Global Investments
As we proceed with the project we need to determine which property will qualify as a primary residence.
“We need to find which of the residences is generating the largest capital gain per year and designate it as the principal residence,” explains François Archambault of the National Bank Private Management 1859.
Sometimes the math gets complicated when the parents move into a retirement home and the house is sold two years later. “In 1972 the capital gain became taxable,” remembers Patricia Besner. If the apartment was previously purchased, a form must be filled out to determine its value in 1972.”
Then we take the retail price, say $540,000, minus the value established in 1972, say $40,000. A $500,000 win.
If Pauline has owned the home for 54 years but only lived in it for 52 years, she is eligible for the primary residence exemption for 52 years plus one additional year. The 54the year not exempt. She must therefore pay 1/54th of $500,000, or $9,259 at 50%, or $4,630.
“I have a non-credit year, but I don’t lose all my years,” emphasizes Patricia Besner.