Donation of part or all the rental property
Adding a reputation to a property itself doesn’t trigger capital gains tax. There is a difference between legal ownership (whose name is on the title) and useful ownership (who technically owns the property). If only the legal ownership changes, but not the useful ownership, there might not be a tax event.
For example, an elderly parent might put their child’s name on their checking account or on the deed of their home. They might do that because they imagine it is going to make it easier to take care of the assets after they age, or to avoid inheritance tax. In these situations, an influence of attorney or similar estate planning document (depending on the province or territory) could also be higher. The asset may not fall out of probate and avoid probate if useful ownership stays with the parent. Putting a toddler’s name on the deed can even pose risks, including creditor problems if the kid is sued, family law disputes if the parents divorce, and elder abuse because the kids have access to the asset.
Was there a fictitious order?
In your case, Flo, it appears like your husband was planning to sell a part of the property. Did he document this with a lawyer or did he simply put your daughter’s name on the rental property? Does she now get half of the rental income?
A real intent to transfer ends in a deemed disposal of half the property at fair market value. This is the equivalent of selling a part of the property and can be taxable when your husband files his tax return next 12 months.
Dealing with the increased capital gains tax rate
It appears your husband has added your daughter to the land registry as a consequence of the rise within the capital gains tax rate on June 25, 2024.
As of that date, the inclusion rate for people on a capital gain of $250,000 or more in a single 12 months increased from half to two-thirds. This signifies that two-thirds of the capital gain is taxable, somewhat than simply half (as was the case before June 25). Only the capital gain over $250,000 is subject to the upper tax rate. (For corporations and trusts, the inclusion rate for all capital gains is two-thirds.)
You mention, Flo, that this was done for estate planning reasons. I assume you plan to maintain the property for the remainder of your life. If that would take a few years, it might not be useful to speed up the payment of capital gains tax. Some of the capital gain will likely still be subject to the upper tax rate – regardless of what – and it might be detrimental to pay the tax prior to crucial.
I mention this not as a criticism, but because in the event you didn’t specifically document your intention and easily entered your daughter’s name on the land registry, it’s possible you’ll wish to reconsider. You should do some tax calculations along with your tax advisor and discuss documenting the transfer along with your attorney.
