CONSTRUCTIVE TRUST Taxation - Parents helping buy apartment for son in Edmonton

My question is: Canadian-specific

QUESTION: We are in the process of purchasing a condo in Edmonton for our children to live in for at least the next 3 years.  The oldest son  is also putting money towards the down payment with the intention of buying it outright in the future. We can structure things just about any way needed as nothing is in writing yet.  Do you have any suggestions so we don't make mistakes.

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david ingram replies:

If the idea is to keep any thought of the CRA attacking an eventual transfer of the title to your son, you should justhave it in his name in the first place and you have loaned or given him the money for the purchase.

If you intend to share in any profit, then that profit would be subject to Capital gains tax whether in his name or yours because he is just holding your share in trust.

On the other hans, if your name is on it and you do not intend to share in any profit and that is in writing and you do not share inany profit, then it is tax free as well, because you are just holding it in in trust for him.  Make sure this agreement is in writing. 

But logically, if your name is on it, there is more chance of the CRA attacking the deal sometime in the future than if only his name is on it and he is occupying the property as his persoanl residence.
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This older Q & A will help as well

from: xxxxxxxxxxxxxxxxxxxxxxx

QUESTION: Me and my husband own a second house, title and mortgage is in our names. My mother lives there for free, thus we do not declare any rental income. We want to sell the house. What's the best way to pay less tax or avoid it? Do I have to pay tax even if it's my mom's primary residence? Can I transfer a title in her name, she sells it as her primary residence and pays no tax?

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david ingram replies;

This is the kind of income tax help I like giving because it deals with family matters and expert family matter income tax help is really hard to find.

If the house was yours, bought and paid for by you and mother did not pay anything towards its upkeep or its purchase, then, any profit on this second residence is taxable to you.

On the other hand if mom sold another property and put her money into this second residence which was registered in your name for estate purposes and mom paid the mortgage, hydro, gas and repairs, etc., then it is your mother's house and you only held it in trust for her.  She had a constructive trust as the owner of the propety and it would be tax free.

Your situation may be somewhere in between.  The problem is that for some reason or other few lawyers and tax people understand what a constructive trust is. Your mom, for instance, may not have had enough to buy the place you wanted so you and your husband ponied up more and rather than loan her the money, put it in your name to protect your interst from ohers.

In general, a constructive house is formed when a person who does not own a property (car, boat, mobile home, house, condo) treats it as their own by paying all the bills and doing all the maintenance, etc, as if it was their own.

If you put upa lot of money and mom put up half and you put it in your name to protect your money from the possibility that mom might die and you were trying to keep 'your' money from your siblings, it was likley your mother's and tax free.

If on the other hand, you and your husband are clearly getting all the money when the house is sold, you and your husband  will owe capital gains tax on the sale.

hope this helps.

And of course, when it comes time to do the return for the sale, you know where we are. �