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: What are the income tax consequences when a parent transfers for estate planning purposes partial ownership of a principal residence to an adult child for no consideration?
Position: Provided the property qualifies as the parent's principal residence, the parent would be able to claim the principal residence exemption.
Reasons: Paragraph 40(2)(b) of the Income Tax Act allows for a principal residence exemption.
XXXXXXXXXX
James Kerr
2010-038348November 3, 2010
Dear XXXXXXXXXX :
RE: Principal Residence Exemption
I am writing in reply to your email dated October 12, 2010 enquiring about the income tax consequences when a parent transfers for estate planning purposes partial ownership of a principal residence to an adult child for no consideration.
The income tax consequences on the transfer of property from a parent to a child are always a question of fact. Whether or not a particular property is a "principal residence" is also a question of fact, see Interpretation Bulletin IT-120R6, Principal Residence for an in-depth discussion of the issue. In the particular situation you describe if the property qualifies as a principal residence, the disposition would not result in any income tax consequences for the parent. Pursuant to paragraph 40(2)(b) of the Income Tax Act if a property qualifies as a taxpayer's principal residence, he or she can use the principal residence exemption to reduce or eliminate any capital gain otherwise occurring.
You seemed to be concerned with whether there is a disposition if no consideration were to be paid and where the adult child continues to reside in the principal residence. Even if there were a disposition, as noted above, the principal residence exemption would exempt the gain from taxation.
We trust these comments will be of assistance.
Yours truly,
Randy Hewlett
Manager
For Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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