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 US / Canada / Mexico tax, Immigration and working Visa Specialists US / Canada Real Estate Specialists My Home office is at: 4466 Prospect Road North Vancouver, BC, CANADA, V7N 3L7 Cell (604) 657-8451 - (604) 980-0321 Fax (604) 980-0325 Calls welcomed from 10 AM to 10 PM 7 days a week Vancouver (LA) time - (please do not fax or phone outside of those hours as this is a home office) email to taxman at centa.com www.centa.com www.david-ingram.com Disclaimer: This question has been answered without detailed information or consultation and is to be regarded only as general comment. 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