Selling A House To A Family Member In Canada

Selling your home to a family member can seem like the perfect win-win situation when it’s time to move on to a new phase in your life. You don’t have to search far to find a buyer, and your relative takes what may be their first step onto the property ladder.

Keeping the house in the family can solve a lot of problems. However, it can open up a whole new set of issues if you are not prepared. In this post, we’ll talk about what you need to know about how to transfer property to a family member. (Disclaimer: This article is for general information only and is not to be construed as legal, financial or tax advice. Please consult with a real estate lawyer and financial advisor to stay compliant with Ontario laws.)

Understanding Fair Market Value is essential when transferring property to a family member. For an unbiased assessment, book your complimentary home evaluation here.

Can You Gift a House to Your Child?

Gifting property to children should be simple, but there are several legal and tax implications to be aware of. Whether you gift a house in its entirety or sell it to your child for $1, the Canada Revenue Agency (CRA) will assume that you sold it for Fair Market Value (FMV).

Unless the home falls under the principal residence exemption, one or both of you will pay capital gains at some point. This means you’ll add 50% of the increase in value to your income for that year, which hurts all the more if you didn’t actually receive full value from the sale to begin with.

Your recipient can also be affected by a gifted property later on. Again, the CRA will assume they have acquired the property at its FMV. If they sell it after its value increases, they will have capital gains unless the home is their primary residence.

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Gifting your home is only one option to help your family member get into the market. Here are some other avenues that may be worth exploring.

Parent-Child Joint Ownership of a House

Transferring ownership of property from parent to child before death might seem more straightforward. If you want to avoid probate, it is essential that you set up the title correctly as a joint tenant. Upon the passing of one party, the property then transfers to the surviving owner automatically.

Keep in mind that land transfer taxes could still apply whenever the ownership transfer is not between spouses. In addition, capital gains could be a factor without the principal residence exemption. We highly recommend speaking with an experienced lawyer to ensure all of your legal bases are covered.

Holding the Mortgage for Your Relative

If your home is fully or mostly paid off, you might also consider holding the mortgage for your family member. This is called a Vendor Takeback Mortgage, and like all aspects of real estate, it can get complicated.

Always ensure that you have a written, legal contract and never rely on verbal agreements, not even when it comes to family. The document should clearly outline all terms, such as the interest rate (even if it’s 0%), the repayment schedule and amortization period. Your real estate lawyer must then register the mortgage with the Land Registry Office for it to be official and enforceable.

Selling a House to a Family Member Below Market Value

As a homeowner, you can technically sell your property at whatever terms you want as long as you are aware of the implications. The transfer is always deemed by the CRA at Fair Market Value regardless of the actual dollar amount that changes hands. Complications aren’t just due to taxes or other legal issues, either.

Gifting a home or selling it significantly below market value can also impact family dynamics. Your generous gesture can be relatively simple if you only have one child. However, it could cause jealousy or feelings of favouritism when multiple children are involved.

Open communication can eliminate any friction before it starts. For example, if one adult child is already a homeowner and the other has yet to get into the market, gifting a house makes more sense. Whatever you decide, try to be as clear as possible about your wishes and your reasoning for them.

Gifting the Down Payment

Not everyone is in a position to gift an entire house to their family, no matter how much they may want to. Gifting a portion of the down payment is another viable way to help a family member with fewer legal and tax repercussions.

The lender will likely require a letter stating that the funds are a gift, rather than a loan to be repaid, before finalizing the mortgage amount. Gifting cash is far simpler since there is no deemed disposition to worry about. As the giver, capital gains are not an issue, now or in the future.

Can You Transfer a Mortgage to a Family Member?

Transferring the title of a property to a family member is no simple matter. It gets even more complex when the home still has a mortgage. In most cases, you can’t just change or add another name to the loan.

Typically, your family member will have to apply for a separate mortgage in their name to cover the balance owing on the house. There are risks involved even if the bank does allow the new owner to assume the existing mortgage. For example, you could be held liable if they default on their payments.

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How an Experienced Real Estate Agent Can Help

Finding a buyer for a property is only one small part of a real estate agent’s role. Even during a private transaction, you can’t discount the value of a knowledgeable and experienced professional to guide you through a challenging situation.

A qualified Realtor® can help you determine the Fair Market Value for the home and draft a fair and legal Agreement of Purchase and Sale. The legalities may seem unnecessary when keeping a home sale within the family, but there is another way to look at it. Ensuring everything is above board will help avoid future disputes and misunderstandings while acting as an objective third party that you can turn to throughout the process.

Do you have questions about selling your home in today’s market? Our top agents in Hamilton & Burlington can help you get the results you need. Reach out today with any questions you have or call 905-332-9223 to connect with our office.

Selling A House To A Family Member In Canada