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: Whether a father would be considered to be the owner of his son's house.
Reasons: The father's name will appear on the mortgage and deed only to help his son obtain financing. The father would not be considered to have beneficial ownership.
XXXXXXXXXX Charles Rafuse
October 17, 2007
Re: Ownership of Property
This is in reply to your letter of September 25, 2007, concerning the ownership of property under the Income Tax Act (the "Act").
You have indicated that your son will be purchasing a house where he will be residing and due to his financial position he requires someone's name besides his own on the mortgage documentation as well as the deed to act as guarantor of his mortgage. You have agreed to do this; however, you will not be contributing any money toward the purchase. You also own your own home.
We understand that you are concerned that you might have to report a capital gain if your son sells the house at a gain or that you might have to report rental income if your son rents out a portion of his residence. In this regard, you contacted your local tax services office and were advised that you would not be subject to income tax in respect of any capital gain from the sale of your son's residence or in respect of any rental income if he rents any portion of his house. You have asked that we conform this opinion.
It is a question of fact whether a person owns a particular property and this can only be determined upon a review of all facts and documentation related to the property. 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. 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. That is, one person's legal ownership of a property may be subject to another person's beneficial ownership of that property. A person who has beneficial ownership rights but not legal ownership can enforce those rights against the holder of the legal title. In determining whether a person has beneficial ownership, 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. Not all of these incidents of ownership need occur concurrently before it is concluded that the person has beneficial ownership of the property, which is a question of fact in each particular case.
While legal ownership and beneficial ownership are usually combined in one person, there are instances where they are not. In this regard, the intent of the parties as expressed in documents, their actions and handling of the property is vital for determining ownership.
Based solely on the information in your letter, it is our understanding that both you and your son intend that only your son is to be the beneficial owner of his house and that by putting your name on the mortgage and deed you are simply acting as a guarantor to the lending institution in respect of the mortgage. If our understanding is correct, we are of the opinion that you would not have to report a capital gain if your son sells his residence and you would not be required to report rental income if your son rents out a portion of the house.
We trust this information is helpful.
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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