As seen on GlobalNews.ca, Dale Barrett, Managing Partner at Barrett Tax Law, answers your pressing tax questions:
I don't understand the implications of adding my adult child as a joint tenant on my home. I know that there can be capital gains tax implications but don't really understand how it works. – A Money123 reader
While adding a child as a joint tenant allows the property to pass to the child outside of the estate and saves probate fees, there are many possible issues of which one should be aware.
The parent loses absolute control over the property. Both owners will have identical rights in the property. If the property is not the parent's principal residence, capital gains tax is payable upon adding the child to title if the property has increased in value since the purchase date. The increase in value on the parent's principal residence from the date the child is put on title may not be entirely tax-free anymore, and there may be capital gains payable. Legal fees must be paid to achieve joint tenancy. If the adult child gets divorced or sued or becomes bankrupt or dies, their estranged spouse or creditors or heirs may have a claim to their share of the house – even if the parent is still living there.
Most importantly, since joint tenancy is complex and can be achieved in different ways, one should get proper tax advice and make sure to document whether the intention is for the child to own the home after their death or whether the child is to hold the home in trust for beneficiaries listed in the will."
– Dale Barrett, Tax Lawyer & Managing Partner
Originally published by GlobalNews.ca.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.