This is a complementary post to Patrick Shing’s 2011 post entitled ‘Adding Your Child to Title as Joint Tenants Not Without Risks.’
Sometimes, owners of property seek out the assistance of a real estate lawyer in order to add a third party on title. Certain owners will retain a lawyer to add their child or children on title. This is usually done for estate planning purposes, so that the child or children can remove the deceased parent from title by registering a survivorship application and therefore, avoid or reduce the payment of probate fees. This process, however, is not without its complications.
If an owner of a property seeks to add a third party to title, one of the first inquiries that will need to be made is if there is a mortgage registered on title. Depending on the mortgage, any transfer or change to the legal ownership of the property may be prohibited under the terms of the secured loan. An owner is well advised to seek the approval and/or permission of their lender to add a third person on title with them.
Land Transfer Taxes
Another consideration that must be looked at is the tax implications when adding a third party on to title. The Ministry of Finance’s website is clear on the quantum of the land transfer tax applicable when a parent transfers a portion of their property to a child while there is an existing mortgage: “The value of the consideration will include one half of the principal balance and accrued interest still owing under the mortgage, plus any other consideration that is given for the child to obtain the parent’s half interest in the property.”
For example, let’s say a parent intends to add their child onto title to their property. If the parent still had an outstanding mortgage in the amount of $50,000.00, the transfer would generate $250.00 in provincial land transfer taxes and another $250.00 in municipal land transfer taxes if the property were located in Toronto. Provided there was no mortgage on title and there was no other consideration for adding a child to title (i.e., a gift), there may be no land transfer tax applicable.
Close attention should also be paid to any capital gains that may accrue upon the transfer of a property. Generally, capital gains arising from the disposition of a property that is “primarily occupied” by you as your principal residence are exempt from taxation for every year you owned it. Note that a capital gain can arise from a disposition that is a deemed disposition (i.e. arising on death) or an actual disposition (i.e. a gift, transfer, or sale to a third party). A disposition can also arise on a change of use of the property from principal residence to rental property. However, as per the Canada Revenue Agency: “If at any time during the period you owned the property, it was not your principal residence, or solely your principal residence, you might not be able to benefit from the principal residence exemption on all or part of the capital gain that you have to report.”
Before you consider adding a third party or child onto title, you should confer with a real estate lawyer so that they can explain the consequences of doing so. They can discuss and explain the different ways in which you can take title to a property with a third party and/or child, along with clarifying the potential pitfalls to avoid.
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