Sent: Monday, May 29, 2006 7:20 AM
To: taxman at centa.com
Subject: Whistler property transfer
Dear Mr. Ingram,
A former colleague who now lives/works in Whistler/Vancouver
recommended you to help us with some tax & real estate issues.
My parents have a 1/4 share interest in a condo at Whistler.
They would like to give it to my brother (single) and me
(married.) We are all U.S. citizens and live in Washington
State. My parents have owned the condo for ~ 2 years. It has
had some appreciation, though it has not been significant. I
haven't reviewed the mortgage docs yet -- I am not sure if it is
assumable, and I believe there is a prepayment penalty. I
believe it is a "standard" vacation home mortage that Intrawest
recommends (HSBC, I think.) The mortgage principal balance is
approx. $110k.
Questions:
1. Can my parents transfer the property to us at approx. their
purchase price? (They purchased it for C$209k; currently, there
is a similar unit for sale for $219k.) What fees would be
involved in such a transfer? (I assume there would be no broker
commissons?)
2. If my parents can transfer the property to us at their cost,
what taxes would my brother and I owe?
3. If my brother and I were to purchase the property from my
parents (with promissory notes), would there be any tax
consequences?
4. If my parents were to forgive the promissory notes in the
future, what would the tax consequences be?
5. I believe my parents have paid 40-50% of the GST on the
condo. They limit their usage to ~ 50% and put the property in
the rental pool for the unused time. There has been minimal
rental income on the property (~$1500 last year.)
6. Any other recommendations to limit our current tax & fee
exposure?
Thank you for your help.
----------------------------------------------------
david ingram replies:
Remember that the US dollar has dropped significantly. In US
terms, if they bought it in 2003 for $209,000 Cdn, that was
about $150,000 Canadian depending upon the day.
Today $219,500 Canadian is worth over $ 200,000 US meaning that
for US purposes, the profit is $50,000+
1. Any property transfer as a gift will be transferred at
today's fair market value under Canadian Income Tax Law. The tax
would be approximately 12% on the first $60,000 of profit, 15% on
the next $60,000, and 20% after that. If the profit happens to
be over $230,000 the tax would be 22% on the amount over
$230,000. There are actually 5 tax rates. In this case the top
rate and the bottom rate are the most accurate. meaning they will
owe $1,200 Canadian on the increase in value. In addition,
because it was a rental unit, Property purchase tax of 1% will
also apply.
2. If they give you the property, the difference between the
mortgage liability will be a gift to you and your brother and
spouse. Your parents can each give each of you $12,000 for a
total of $36,000 per parent and the three of you can receive
$24,000 each for a total of $72,000 US or $78,000 Canadian at
today's exchange rates.. If there is more difference, than they
will have to spread the gift over several years by giving you
$24,000 worth of equity each per year. This can be done on
paper. The title registration does NOT have to be registered at
the Land Registry Office to be legal. However, if you do not
register the difference, it will still appear to be theirs and
the other owners may have a problem with it. However, the amounts
are likely within one's year's figures in your case.
If they do give you a portion, make sure that you and your
brother and spouse then pay your percentage of costs or expenses.
If they give it to you, they have the tax liability, you and your
brother start your liability from that point. Do not make the
mistake of taking it over at their ACB for US purposes because it
will raise your tax bill in the future in the US and your parents
will already have paid the tax in Canada.
3. That is effectively what you are doing one way way or the
other.
4. AS above
5. not enough info to comment
6. nothing specific.
=======================================
David Ingram's US / Canada Services
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