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QUESTION: My brother transferred his house under my name 10 years ago and no money was ever involved in the transfer. My dad currently live in this house and there is no rental income. Since this house is not my primary residence, if I sold this house would this situation be considered capital gain?
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david ingram replies:
It depends upon how and why. If the house was your dad's first and he
transferred it to your brother and your brother transferred it to you
and you both think of it as dad's house, and dad has made all the
repairs and paid all the expenses for taxes, etc., it may be your dad's
house under what is called a constructive trust.
If your brother transferred his house to you because he owed you money
and your dad moved in last year, its sale is tax able as a capital gain.
The actuality may be somewhere in between.
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QUESTION: Me and my husband own a second house, title and mortgage is in our names. My mother lives there for free, thus we do not declare any rental income. We want to sell the house. What's the best way to pay less tax or avoid it? Do I have to pay tax even if it's my mom's primary residence? Can I transfer a title in her name, she sells it as her primary residence and pays no tax?
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david ingram replies;
This is the kind of income tax help I like giving because it deals with
family matters and expert family matter income tax help is really hard
to find.
If the house was yours, bought and paid for by you and mother did not
pay anything towards its upkeep or its purchase, then, any profit on
this second residence is taxable to you.
On the other hand if mom sold another property and put her money into
this second residence which was registered in your name for estate
purposes and mom paid the mortgage, hydro, gas and repairs, etc., then
it is your mother's house and you only held it in trust for her. She
had a constructive trust as the owner of the property and it would be
tax free.
Your situation may be somewhere in between. The problem is that for
some reason or other few lawyers and tax people understand what a
constructive trust is. Your mom, for instance, may not have had enough
to buy the place you wanted so you and your husband ponied up more and
rather than loan her the money, put it in your name to protect your
interest from others.
In general, a constructive house is formed when a person who does not
own a property (car, boat, mobile home, house, condo) treats it as
their own by paying all the bills and doing all the maintenance, etc,
as if it was their own.
If you put up a lot of money and mom put up half and you put it in your
name to protect your money from the possibility that mom might die and
you were trying to keep 'your' money from your siblings, it was likely
your mother's and tax free.
If on the other hand, you and your husband are clearly getting all the
money when the house is sold, you and your husband will owe capital
gains tax on the sale.
hope this helps.
And of course, when it comes time to do the return for the sale, you
know where we are.
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-
This applies in the US or Canada.
QUESTION:
My father is a widower and added my sister and I on title to his house
which is his principle residence. He did this in 2003 and informed us
of it after the fact. He did this to save on the future probate fees
and no money exchanged hands. His house has considerably increased in
value in 5 years. If my sister and I wanted our names taken off the
title now, will we be subject to capital gains on our 2/3 portion from
2003 to 2008?
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david ingram replies:
If your name was only on the title for probate purposes and neither you
nor your sister has listed 'your' shares of the house as an asset or
used it as leverage to borrow money or continue other financing, AND
your father has continued to pay all expenses, etc involving the house,
then I have no problem accepting that you were just holding the share
in trust for your father.
In that case, there should not be any tax liability if you were to take
your names off the title.
However, if either of you are married, your spouses may have other
ideas and try and claim the putative value of 'your' share of the house
in a future divorce action and claim that you took your names off the
title to circumvent BC's Family Relations Act.
When anyone wants to do this, they should have a side agreement that
accepts that the transfer was done for PROBATE purposes and that the
children acknowledge that until the parent's demise, the child will not
make any claims against the house, will not pledge their interest as
security, and return the property to the parent upon request. At the
same time, any spouse of the child should sign the same document and
acknowledge that they have no claim against the property while the
parent is alive.
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I appreciate all I learn reading your emails.
Mom is still thriving in her 87th year. My brother and I are
executors.
Is there any significant advantage in us being registered on the
title of her condo here in British Columbia?
I had forwarded the following email to my brother, but since B.C.
does not have estate taxes, he is asking where the advantage might be...
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david ingram replies:
BC does have Probate fees though and avoiding probate fees can be worth
significant dollars
The BC rates are as follows:
2 (1) In
addition to any fees payable under the Rules of Court to commence a
proceeding to obtain the issue of a grant or a resealing and to any
fees payable under the Rules of Court to file documents within that
proceeding, a fee determined in accordance with this section must be
paid to the government, before the issue of any grant or before any
resealing, as the case may be, on behalf of the estate of a deceased by
the personal representative of the deceased but is payable by that
personal representative in his, her or its representative capacity
only.
(2) No fee is payable under this Act
(a) on a grant de bonis non, a cessate grant or a double
probate, or
(b) if the value of the estate does not exceed $25 000.
(3) If the value of the estate exceeds $25 000, whether
disclosed to the court before or after the issue of the grant or before
or after the resealing, as the case may be, the amount of fee payable
is
(a) $6 for every $1 000 or part of $1 000 by which the value
of the estate exceeds $25 000 but is not more than $50 000, plus
(b) $14 for every $1 000 or part of $1 000 by which the
value of the estate exceeds $50 000.
(4) If, after the issue of any grant or after any
resealing, the personal representative learns of the existence of an
asset of the deceased that was not disclosed in the Statement of
Assets, Liabilities and Distribution exhibited to the affidavit leading
to the grant or to the resealing, determines that the value attributed
to an asset in that statement must be revised or determines that an
asset was otherwise not properly disclosed, the personal representative
must disclose to the court the existence and value of that asset and
must pay to the government the difference between the fee paid before
the issue of the grant or before the resealing and any greater fee that
would have been payable under subsections (1) to (3) had the asset been
disclosed or appropriately valued in the original Statement of Assets,
Liabilities and Distribution.
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If her house was the only thing in the estate and worth
$650,000 the probate fees in BC would be worth $8.550. If the house
was in joint tenancy with right of survivorship, there would be no
probate fees and no need to go to the time and effort of probating the
will.
If the house is $1,050,000, you save $14,050.00
The big savings is in the paperwork after death. Most of it goes away
if you do not need to probate a will.
The rules are similar for most provinces and states and there is no US
Federal Estate tax now on amounts under $2,000,000 for 2007 and 2008
and $3,500,000 for 2009. Individual states do have estate tax however
but the rates change from state to state. You can see the Ohio taxes
(as an example) at http://en.wikipedia.org/wiki/Ohio_estate_tax
Because the family house falls into a taxable estate, the joint tenancy
rule in Canada does not work the same in the USA when there is a
taxable estate but can still save a lot of paperwork.
The original Q & A follows
My question is: Canadian-specific
QUESTION: I am an only child. My elderly parents own a home which will
some day come to me. Is there a tax advantage to having the home put in
all
three of our names now and as any one of us passes on the house is
already in
the survivors names. If yes what is the process to get this done.
Thanks
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david ingram replies:
If you put the home into joint tenancy with right of survivorship, the
home does not pass through probate upon any of the member's death.
With the value of some homes today, that can be a significant saving
in probate
fees in some provinces and states.
However, after the transfer form mom and dad as "joint tenants with
right of survivorship" to mom, dad and you as "joint tenants with
right of survivorship", the property is bound to go up in value and
theoretically, if it is "yours", you would owe capital gains tax on
your share when
eventually sold.
The solution is to have a side agreement which states that your name is
on title for estate and probate purposes and that you are holding what
ever share (there could be three or four kids along with mom and dad)
you
have in trust for them and that you will not pledge it as security,
will not
list it as an asset and will not make any effort to partition the
property and
have it registered as tenants in common.
Many lawyers are not happy with this arrangement but I have seen it
done many, many times and never challenged by the CRA or IRS.
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On April 6. 2008, David
Ingram wrote:
It is very unlikely that blind or unexpected email
to me will be
answered. I receive anywhere from 100 to 700 unsolicited emails a day
and usually answer anywhere from 2 to 20 if they are not from existing
clients. Existing clients are advised to put their 'name and PAYING CUSTOMER' in the subject line
and get answered first. I also refuse to be a slave to email and do
not look at it every day and have never ever looked at it when I am out
of town. e bankruptcy expert US Canada Canadian American
Mexican Income Tax service and help
However, I regularly search for the words"PAYING
CUSTOMER" and always answer them first if they did not get spammed out.
For the last two weeks, I have just found out that my own email notes
to myself have been spammed out and as an example, as I wrote this on
Dec 25, 2007 since June 16th, my 'spammed out' box has
47,941 unread messages, my deleted box has 16645 I have actually looked
at and deleted and I have actually answered 1234 email questions for
clients and strangers without sending a bill. I have also put aside
847 messages that I am maybe going to try and answer because they look
interesting. -e bankruptcy expert US Canada Canadian American
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Therefore, if an email is not answered in 24 to
48 hours, it is likely lost in space.
You can try and resend it but if important AND YOU TRULY WANT OR NEED
AN ANSWER from 'me', you will have to phone to make an appointment.
Gillian Bryan generally accepts appointment requests for me between
10:30 AM and 4:00 PM Monday to Friday VANCOUVER (Seattle, Portland, Los
Angeles) time at (604) 980-0321. david ingram expert
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Disclaimer:
This question has been answered without detailed information or
consultation and is to be regarded only as general comment. Nothing
in this message is or should be construed as advice in any particular
circumstances. No contract exists between the reader and the author and
any and all non-contractual duties are expressly denied. All readers
should obtain formal advice from a competent and
appropriately qualified legal practitioner or tax specialist for expert
help, assistance, preparation, or consultation in connection with
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included." e bankruptcy expert US Canada Canadian American
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David Ingram
gives expert income tax service & immigration help to non-resident
Americans & Canadians from New York to California to Mexico
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Phone consultations
are $450 for 15 minutes to 50 minutes (professional hour). Please note
that GST is added if product remains in Canada or is to be returned to
Canada or a phone consultation is in Canada. ($472.50 with GST if in
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Income Tax service and help.
This is not intended to be definitive
but in general I am quoting $900 to $3,000 for a dual country tax
return.
$900 would be one T4 slip one W2 slip
one or two interest slips and you lived in one country only (but were
filing both countries) - no self employment or rentals or capital gains
- you did not move into or out of the country in this year.
$1,200 would be the same with one
rental
$1,300 would be the same with one
business no rental
$1,300 would be the minimum with a
move in or out of the country. These are complicated because of the
back and forth foreign tax credits. - The IRS says a foreign tax credit
takes 1 hour and 53 minutes.
$1,600 would be the minimum with a
rental or two in the country you do not live in or a rental and a
business and foreign tax credits no move in or out
$1,700 would be for two people with income from two countries
$3,000 would be all of the above and
you moved in and out of the country.
This is just a guideline for US /
Canadian returns
We will still prepare Canadian only
(lives in Canada, no US connection period) with two or three slips and
no capital gains, etc. for $200.00 up.
With a Rental for $400, two or three
rentals for $550 to $700 (i.e. $150 per rental) First year Rental -
plus $250.
A Business for $400 - Rental and
business likely $550 to $700
And an American only (lives in the US
with no Canadian income or filing period) with about the same things in
the same range with a little bit more if there is a state return.
Moving in or out of the country or
part year earnings in the US will ALWAYS be $900 and up.
TDF 90-22.1 forms are $50 for the
first and $25.00 each after that when part of a tax return.
8891 forms are generally $50.00 to
$100.00 each.
18 RRSPs would be $900.00 - (maybe
amalgamate a couple)
Capital gains *sales) are likely
$50.00 for the first and $20.00 each after that.
Catch - up returns for the US where we use the
Canadian return as a guide for seven years at a time will be from $150
to
$600.00 per year depending upon numbers of bank accounts, RRSP's,
existence of rental houses, self employment, etc. Note that these
returns tend to be informational rather than taxable. In fact, if
there are children involved, we usually get refunds of $1,000 per child
per year for 3 years. We have done several catch-ups where the client
has received as much as $6,000 back for an $1,800 bill and one recently
with 6 children is resulting in over $12,000 refund.
This is a
guideline not etched in stone. If you do
your own TDF-90 forms, it is to your advantage. However, if we put them
in the first year, the computer carries them forward beautifully.
This from "ask an income trusts tax service and
immigration expert" from www.centa.com or www.jurock.com or www.featureweb.com. David Ingram deals on a daily basis with expatriate tax
returns with multi jurisdictional cross and trans border expatriate
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