rent to own from parents -

My question is: Canadian-specific
QUESTION: My spouse and I have a rent-to-own purchase agreement with his
parents for our house since 2001.  The agreed price was $52,000 which
included all fees incurred by them at the time of purchase of the home (ie.
assessments, penalties, etc.)  We have paid monthly payments of $450.00
since April 2001. We also pay the property taxes every year. The home does
not have it's own mortgage, I believe it was lumped into their own mortgage
at their renewal date.
My question is:  Are we responsible for their capital gains?  Would there be
any tax on the sale, as they are not making any profit, per se. Or are we
liable for income taxes on the lease income they claimed since 2001?  We are
in the process of applying for our own mortgage for the remainder owed on
this house, and need to know our liabilites.
Thank you
---------------------------------------------------------------------------
david ingram replies:
Rent to own usually implies that a portion of the payment is being applied
against the principal and is used as the down payment when enough has been
accumulated and you can now finance it on your own.
Usually, but not always, the price is set at the start so that when you
exercise the option, you buy it for a predetermined price.
Therefore, if you are buying it at a 2001, price, there would be no capital
gains tax if you bought it for what m-i=l and f-i-law paid for it
themselves.
I am not eager to comment on whether they paid tax on the lease payments.  -
I would need more information.  But, if you paid them rent, they should have
paid tax on the rent and that should have been their bill.
It sounds to me that not enough paperwork was done at the start and these
things were no clear.
hope this helps a bit.
David Ingram's US/Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
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