Father on title - who owns apartment and who pays the tax?

My question is: Canadian-specific

QUESTION: I purchased an apartment about four years ago.I lived there for one year and I have been renting it out since then.when I bought it my father had to co-sign for the morg. and became one per cent owner.I have been claiming all the rental income on my name.there has been no money exchange between us, my father i guess was just an insurance for the bank.My question is I have gotten my fathers name taken of the morg. and land tittle so now I'am now 100 per cent owner.Now do we both pay capital gain how is it calculated and is there any other tax we have to pay?I payed $126,000 it was assesed at $165,000.

david ingram replies:

As described, your father has no position, He was merely there for banking purposes and he held it in trust for you.

If you are selling now, there should be no capital gains tax for you either. You are allowed to rent out a personal residence for up to 4 years if you file a declaration under 45(2) of the tax act.

The following question will help you a bit more and give you the forms to fall out.

.net]
Sent: Monday, August 15, 2005 4:20 PM
To: taxman@centa.com
Subject: tax exemption from sale of property

Hello Mr. David Ingram,

I am a mortgage broker with XXXXXXXXXX Financial. I recently came across an email where you explained how a principal residence could be rented and then sold without being subject to capital gains taxes.

“…a person is allowed to rent his or her principal residence out for up to four years without paying tax and for any length of time if the rental is because they were transferred out of the city…”

If someone purchased a house and lived in it for more than a year, then moved out and rented out the house, are they exempt from capital gains if they sell that house within 4 years from the rental start date?
Also, can they claim that their rental property is their principal residence when they have already purchased and are living in another house?
Also, I would like to meet with you to discuss the Smith Manoeuvre. I have spoken with a few lenders about the Smith Manoeuvre but they said they only provide the platform for someone to set up this tax strategy. I would like to talk with you about the details of this tax savings strategy if you have time.

Thank you,



XXXXXXXXXXXXXXXXX

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david ingram replies:

The answer is as stated with the proviso that the house must have been purchased as a pMy question is: Canadian-specific

QUESTION: I purchased an apartment about four years ago.I lived there for one year and I have been renting it out since then.when I bought it my father had to co-sign for the morg. and became one per cent owner.I have been claiming all the rental income on my name.there has been no money exchange between us, my father i guess was just an insurance for the bank.My question is I have gotten my fathers name taken of the morg. and land tittle so now I'am now 100 per cent owner.Now do we both pay capital gain how is it calculated and is there any other tax we have to pay?I payed $126,000 it was assesed at $165,000.

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david ingram replies:

As described, your father has no position, He was merely there for banking purposes and he held it in trust for you.

If you are selling now, there should be no capital gains tax for you either. You are allowed to rent out a personal residence for up to 4 years if you file a declaration under 45(2) of the tax act.

The following question will help you a bit more and give you the forms to fall out.

Sent: Monday, August 15, 2005 4:20 PM
To: taxman@centa.com
Subject: tax exemption from sale of property

Hello Mr. David Ingram,

I am a mortgage broker with XXXXXXXXXX Financial. I recently came across an email where you explained how a principal residence could be rented and then sold without being subject to capital gains taxes.

…a person is allowed to rent his or her principal residence out for up to four years without paying tax and for any length of time if the rental is because they were transferred out of the city…”

If someone purchased a house and lived in it for more than a year, then moved out and rented out the house, are they exempt from capital gains if they sell that house within 4 years from the rental start date?

Also, can they claim that their rental property is their principal residence when they have already purchased and are living in another house?

Also, I would like to meet with you to discuss the Smith Manoeuvre. I have spoken with a few lenders about the Smith Manoeuvre but they said they only provide the platform for someone to set up this tax strategy. I would like to talk with you about the details of this tax savings strategy if you have time.

Thank you,
----------------------------------------------
david ingram replies:

The answer is as stated with the proviso that the house must have been purchased as a principal residence. Merely living in it does NOT make it a principal residence although for all practical purposes it does because unless they get a tip the CRA rarely ever looks at a house sale.

But if your fellow moved into the house and fixed it up to get it ready to rent and was living there as a convenience rather than his "principal" residence, it would not be tax free.

To do the calculation, you must prepare form T2091 available at the CRA website or click here:

http://www.cra-arc.gc.ca/E/pbg/tf/t2091_ind/t2091-ind-04e.pdf

the T2091 worksheet is at http://www.cra-arc.gc.ca/E/pbg/tf/t2091_ind_-ws/t2091-ind-ws-04e.pdf

In addition, with the first rental return, the person must make the following election:

I hereby designate the residence at XXXX any street, to be my principal residence even though I do not ordinarily inhabit it under section 45(2) of the income tax act.

In the past, the CRA would usually accept a late election but after thirty-four years (the law was passed June 17, 1971) the CRA figures that people should get it right. Strangely enough though, very few accountants seem to know about it and I have NEVER had a client bring in the election prepared by another accountant. For years we had it printed on our proprietary software so that it was there automatically and a subject of conversation, if not actually used.

However, if I move out of my former principal residence and move into another house I own whether for the four year period in the same area or any length of time if I get transferred, I can only claim one or the other as my principal residence for tax purposes so if I claim the one in Vancouver, i have o pay tax for the same time period on the one in Toronto or Halifax.

Obviously, one claims the one that went up the most.

If you go to www.centa.com and read the November 2001 b=newsletter, you will have the original document about making mortgage interest deductible in Canada. It was originally published in the North Shore News in November 1976 and has been updated every four or five years since and is due for a new update soon.

If you would like a free look, you can come out to one of the Thursday night seminars at Fred Snyder's Dundee Wealth Management office.

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