selling rental property to son

QUESTION: My husband and I own 3 rental properties-should we have a corporation to save on taxes?  Also our son wants to purchase one of our homes (we claimed it as a rental on our taxes) do we have to sell it to him at fair market value or can we give our child a deal?

  david ingram replies:

In my opinion, you should not have a corporation.  A persoanl holding company corporation usually ends up owing MORE tax and the accounting is even worse.

You can sell to your son for any price you please.  However, because it is a non-arms length transaction, you still have to treat it as sold at  a fair market value on your returns and pay tax as if you sold it for full price. 

Your son will also want the higher price for his records to cut his tax in the future.  So sell it at full price and waive the down payment or some other amount as a gift.

There is no gift tax in Canada.  Remember as well, that ifyou have claimed CCA (capital cost allowance or depreciation) on the house sold to your son, you have to recapture that depreciation and pay tax on it now by putting the recaptured amount on schedule T776.

The increase in value of the unit is taxable by putting the amounts on schedule 3 -

Then, by following the form to the bottom you will see that

One half of the increase in value of the unit goes on line 127 as taxable income. �