Giving away some or all of the rental property
The act of adding a name to a property itself does not give rise to capital gains tax. There is a difference between legal ownership (whose name is on the title) and beneficial ownership (who technically owns the property). If only legal ownership changes, and does not benefit ownership, there may not be a tax event.
For example, an elderly parent may add their child's name to their bank account or home title. They may do this based on the idea that it will make it easier to manage assets as they grow, or in an effort to avoid probate taxes. In these cases, a power of attorney or similar will document (depending on the province or territory) may be better. Property may not fall outside of the estate and avoid probate if beneficial ownership remains with the parent. There may also be risks to adding a child's name to the title, including creditor issues if the child is sued, family law disputes if the parents divorce, and elder abuse if the children do not have access to the property.
Was there an imagined situation?
In your case, Flo, it sounds like your husband intended to spend half of the property. Did you write this directly with an attorney, or did you just add your daughter's name to the lease? Are you now getting half the rent?
The actual intent of the transfer results in the acquisition of a portion of the property at fair market value. It is equivalent to selling part of the property, tax payable when your husband files his tax return next year.
Addressing the rate of incorporation of additional capital gains
It seems that your husband has added your daughter to the title of the property due to the increase in the income tax rate on June 25, 2024.
Since that date, the filing rate for individuals has increased from one-third to two-thirds for gross income of $250,000 or more in a single year. This means that two-thirds of capital gains are taxable instead of just one-half (as was the case before 25 June). Only capital gains above $250,000 are taxed at the higher rate. (For companies and trusts, the contribution rate is two-thirds of all capital gains.)
You say, Flo, that this is for estate planning purposes. I think you intend to hold this place for the rest of your life. If that may be many years, it may not be beneficial to accelerate the payment of capital gains tax. Some capital gains will likely still be below the maximum rate of inclusion—no matter what—and paying taxes before you need them may be bad.
I don't suggest this as a criticism, but because you can still think again, if you haven't written your intention specifically and just add your daughter's name to the title of the place. You should do the tax calculations with your attorney and discuss the transfer documents with your attorney.
Source link
