30 March 2010 External T.I. 2010-0358161E5 - Beneficial owner of a residence

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Beneficial owner of a residence

Position: Question of fact. See response.

Reasons: See response.

								2010-035816
XXXXXXXXXX 							André Gallant
								(613) 957-8961
March 30, 2010

Dear XXXXXXXXXX :

Re: Beneficial owner of a residence - Disposition of property

This is in response to your undated correspondence received by our office on February 22, 2010, regarding the income tax consequences of transferring the legal title in a house to your sister.

Our understanding of the facts is as follows:

1. In 1991, your sister and her family wanted to purchase a house. Although your sister and her family had sufficient funds to pay for the down payment on the house, they did not qualify for a mortgage based on their financial position.

2. In order to get the house, your sister asked you if you would assist her and her family to purchase the house, as you qualified for a mortgage at that time. You agreed to help, and purchased the house in your own name.

3. From that time on, your sister and her family have lived in the house and have continually covered all house related expenses, such as mortgage payments (principal and interest), municipal property taxes, utilities, insurance, repairs and maintenance.

4. During this period, you never spent any money towards the house and never claimed any expenses for the house for tax purposes.

5. You always considered the house to belong to your sister and her family, although the legal title and mortgage are in your name.

6. You now want to transfer the legal title with the mortgage to your sister and her family for the following reasons:

a. Because the value of the house has increased and the mortgage has decreased, your sister and her family now qualify to borrow the money for the balance of the mortgage;

b. In case of death, yours or your sister's, the existing arrangement will be cumbersome for the survivors (your family and her family);

c. You believe that your sister and her family have always been the beneficial owner of the house and must now be the legal owner of the house as well, as they have always covered all financial obligations relating to the house; and

d. You wish to be discharged from the legal responsibilities associated with the legal title to the house and the mortgage on the house.

You asked whether the transfer of the legal title to your sister and her family will trigger income tax consequences for yourself.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office (the "TSO"). We are, however, prepared to offer the following general comments, which may be of assistance.

Under the Income Tax Act (Canada) (the "Act"), a capital gain accrued on a capital property is triggered when there is a disposition of the property. A house is normally considered a capital property. However, a disposition does generally not occur for tax purposes if there is a transfer of title that is not accompanied by the transfer of beneficial ownership (paragraph (e) of the definition of "disposition" in subsection 248(1) of the Act). Therefore, a taxpayer's mere transfer of legal title to a person who has beneficial ownership of the property is not a disposition for tax purposes that would trigger a capital gain in the taxpayer's hands.

In the common law jurisdictions, two forms of property ownership are recognized - legal and beneficial. Normally "legal ownership" exists when title is transferred to, recorded in, registered in or otherwise carried in the name of a person. Legal owners are generally entitled to enforce their ownership rights against all other persons. In contrast, the term "beneficial ownership" is used to describe the type of ownership of a person who is entitled to the use and benefit of the property whether or not that person has concurrent legal ownership.

The determination of whether a person beneficially owns a property is a question of fact that can only be determined after a review of all the documents and the circumstances applicable to a particular situation.

The primary attributes of beneficial ownership include possession, use and risk. Therefore, in determining whether a person has beneficial ownership in a property, one should consider such factors as the right to possession, the right to collect rents, the right to call for the mortgaging of the property, the right to transfer title by sale or by will, the obligation to repair, the obligation to pay property taxes and other relevant rights and obligations.

Useful comments relating to the concepts of "beneficial ownership" and "legal ownership" can be found on our website in Interpretation Bulletins IT-437R, Ownership of Property (Principal Residence), and IT-170R, Sale of Property - When Included in Income Computation.

In the present case, it would appear that your sister is the beneficial owner of the house based on the information provided in your letter. However, as stated above, the local TSO would be in a better position to address this question following a review of all the documents and the circumstances applicable to your situation.

We trust that these comments will be of assistance.

Yours truly,

S. Parnanzone
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch