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 change in legal title will result in a disposition?
Position: Question of fact.
Reasons: Where there is no change in beneficial ownership there is generally no disposition under the Act.
XXXXXXXXXX
2013-051177
S. D'Angelo
November 22, 2013
Dear XXXXXXXXXX:
Re: Beneficial ownership of a principal residence
This is in response to your letter of October 31, 2013 regarding the income tax consequences of transferring legal title of a house to your daughter.
Briefly, in your letter you indicate that in XXXXXXXXXX your daughter purchased a house that she has lived in continuously since the time of its purchase. However, since your daughter did not qualify for a mortgage at the time of the purchase the particular lending institution required legal title of the house to be placed in your name. You further indicate that your daughter has made all the mortgage payments and paid all other costs related to the home and that you have never lived in the home since you own your own home. The mortgage is now paid in full and you would like to transfer legal title of the house to your daughter. You want to know if this will trigger any income tax consequences for you.
Our Comments
This technical interpretation provides general comments about the provisions of the Income Tax Act (the "Act") and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.
Under the Act, a capital gain accrued on a capital property is triggered when there is a disposition of that property. A taxpayer's principal residence is normally considered to be a capital property. If a property qualifies as a taxpayer's principal residence, an exemption can be claimed to reduce or eliminate any capital gain otherwise realized on the disposition of the property. One of the requirements for a property to qualify as a taxpayer's principal residence for a taxation year is that it must be "owned" by the taxpayer.
In 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 particular property is a mixed question of law/fact that can only be determined after a review of all the facts and circumstances applicable to a particular situation. However, based on our understanding of the facts it appears that your daughter is likely the beneficial owner of the home. If that is the case, then the transfer of legal title of the house to your daughter would not result in any income tax consequences to you although you might want to obtain independent legal advice as to whether there are any other implications, such as land transfer taxes.
For more information on the principal residence exemption and the concepts of legal and beneficial ownership, please refer to Income Tax Folio S1-F3-C2: "Principal Residence", which can be viewed on the Canada Revenue Agency's web site.
We trust our comments will be of assistance.
Yours truly
Michael Cooke, C.P.A., C.A.
Manager
Business Income and Capital Transaction Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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