When transferring the legal title of a property to a family member, a disposition for tax purposes may not necessarily occur. The taxable event would occur when a “beneficial ownership” change happens. Usually, a beneficial change and legal change are one in the same, but not always.
In a June 14, 2016 Technical Interpretation, CRA examined the situation where a married couple transferred the title to a property and mortgage into a parent’s name because they no longer qualified to refinance the original mortgage. Once their financial position improved, they transferred the title back. The original taxpayers continued to make all mortgage payments and other house costs. They also continued to live in the dwelling throughout the legal transitions.
The CRA opined that despite the legal ownership changes, no beneficial ownership change occurred. Therefore, there was no taxable disposition.
Action Item: Since the taxability of such a transaction is a matter of interpretation, caution should be taken when relying on such a position. Discuss your fact pattern with a professional and be sure to document appropriate support.
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