Transferring small piece of property to son, at what cost?

Question

Here in Canada, my husband and I would like to transfer a small piece of property (value approx $4000) to our son. We are on a very tight budget, both retired, and would like to avoid the capital gains taxes in the spring on our income tax which would probably arise if we "transfer" the property. We already have to pay so much, it seems, whenever we have to cash in any of our retirement savings on which to live. Is there any other way we can "give" this piece of land to our son without it costing us too much money? Could we sell the property to him for a nominal price? We don't really know and if you have any ideas, all would be appreciated. We would like him to have it now and not only when we die and he inherits.

Answer 1

No, you cannot sell at a nominal price.  This is a non-arms length transaction, so it has to be done at full value.

Check with a lawyer, perhaps you can sign some sort of legal paper giving your son full access and control of the land without actual ownership until after one or both of you pass on?  It's worth noting, though, that capital gains are charged at death as well.

Tax on this property, if you have stated the value correctly, will be minimal. Even if bought at zero cost, that only leaves a gain of $4000, which translates to a taxable value of $2000.  If you are lower income, that $2000 income will be taxed very low.  Even at the highest income tax in the country, it would only run around $800.  That's the max, it could be much much lower.

The legal fees in trying to avoid this tax could easily outweigh the tax itself.

Answer 2

Since the land is being transferred to a relative, this is considered a non-arm's length transaction. Therefore, at the time of the transfer, you will be deemed to have sold the property at its fair market value, regardless of whether or not you actually received any money in the transfer.

The taxable capital gain will be half the difference between the fair market value, and the value the land had at the time you aquired it. In addition, any lawyer's fees, surveys, etc., can be deducted against the gain under outlays or expenses.

Keep in mind that this capital gain may also have an affect on the amount you may be receiving for the Guaranteed Income Suppliement or the GST Credit.