So You Want to Help Your Kids Buy a Home.

Man gives a woman the keys to a new home

Topic: Wealth Planning

Brad Weber  CPA, CA, CFP, CIM

September 16, 2019

Image used with permission: iStock/simpson33


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So You Want to Help Your Kids Buy a Home.

In some real estate markets like Toronto or Vancouver many parents are worried that their children are going to be priced out of the market. This, among other concerns, has them considering helping their kids with the down payment on a home or outright buying one for them. After all, nothing says I love you like a new home.

With no gift tax in Canada, you might assume nothing could be simpler. But the first thing someone considering such a gift should think about is how this could affect their own financial situation. You’ll want to understand what the effect on your own long-term plans might be when giving away a portion of your capital. Will you still be able to enjoy your retirement as you had originally planned?

And that no gift tax thing? While it’s technically true, there are still many ways you might inadvertently trigger taxes for yourself. Naturally, if you have cash available in a regular account, it can make gifting capital pretty straightforward. But if you need to sell existing investments to generate cash, you’ll want to understand what capital gains could be triggered.

If your idea involves transferring a non-cash asset to your child, such as an existing piece of real estate, that will raise a host of other potential issues. There could be a deemed disposition on any transfer, with the parent paying capital gains as if they sold the asset at fair market value. At the same time, the child will receive the asset at the value they “paid” for it, which will form the basis of how much capital gains tax they’ll have to pay on a future sale. Since this was a gift, that value will most likely be zero. So when they do sell that asset in the future, it’ll effectively result in double taxation to the family as a whole. That is never a good result.

Then there are questions about how to structure a potential real estate purchase. Do you buy the new property in your own name and let your child live there effectively rent free? Do you have the child purchase the property in their own name? You could consider lending them the money, possibly at a very low interest rate. You might even consider using a family trust if you thought about it hard enough.

Each of these options has its own pros and cons and your decision will be influenced by your own personal circumstances and what you want to achieve. We haven’t even addressed how to protect assets against the risk of a future marital breakdown for your child. One has to wonder why a simple act of kindness has to be so complicated. “No good deed goes unpunished” as the saying goes.

The desire to help our loved ones is a wonderful thing, but preferably without creating a bunch of unintended consequences. While these issues can frequently arise with respect to a real estate purchase, they also need to be considered with any gift or asset transfer. If you are considering helping your children in a significant manner, it would be wise to discuss such a gift with your advisors. Most importantly, any such gift should be made on the basis of a well-developed plan that ensures the gift you give isn’t something you’ll eventually need back.

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