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Canadian MoneySaver magazine has provided Canadians with balanced insight into personal-finance issues since 1981. Through an exclusive arrangement
with The Costco Connection, Canadian MoneySaver’s experts provide Costco members with answers to their questions about financial issues.
Email to: questions@canadianmoney
saver.ca. Or send to: Canadian
MoneySaver, The Costco Connection Q&A, 55 King St. W., Suite 700,
Kitchener, ON N2G 4W1.
Selected questions are answered
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The opinions of the experts may not
apply to Quebec residents.
It’s all in the family
I have purchased a rental property with
the intention of being in business with
my son. Will I have a problem splitting
the capital gain and profits with him
when we sell?
D.A., Waterloo, ON
When it comes to rental property, income
and expenses are typically split between owners. Assuming the rental property was purchased personally by father and son, each
family member would record half of the
income and expenses on schedule 776 of their
personal T1 return.
When it comes to the sale of the property,
it’s possible to split the capital gains. It’s
important to ensure, however, that the title is
listed in both parties’ names. If that’s the case,
each party would reflect his portion of the
capital gain on his tax return.
So, if the property was purchased for
$250,000 and sold for $300,000, the $50,000
capital gain would be split between father and
son on their separate T1 returns at $25,000
each. Capital gains are also only 50 per cent
taxable, so father and son would each report
$12,500 in net income.
The above example addresses just capital
gains. The other portion of potential income
when selling a property arises from recapture.
Recapture occurs when depreciation is taken
on the property each year and the property is
then sold for more than its book value.
If this property was depreciated by
$20,000 over time, $20,000 would have to be
taken back into income upon sale of the property in addition to the $50,000 capital gain.
Recapture, in contrast to capital gains, is taken
into income at 100 per cent. Of course, there’s
no problem splitting the recapture amount
between father and son, so long as they split
the tax bill. To keep the future tax liability low,
it may be best (depending on individual circumstances) not to claim any depreciation on
the property if you plan to sell it down the road.
Josh Zweig, CPA, CA, LPA, Live.ca
I have Enbridge stocks registered under
my name. I would like to transfer stocks
to my daughters (ages 15 and 17). I can
send the transfer agent the securities
transfer form, and I would be the legal
representative. Do I hold these stocks in
trust because my daughters are under
the legal age for Ontario? If so, will I
need to pay their dividend taxes? Will
these change automatically when they
M.C., Stittsville, ON
The big advantage of purchasing stock in
a child’s name is to have the growth or capital
gains attributed to the child when he or she
sells it down the road. As most 18-year-olds
don’t have much of an income, the capital
gains from the sale of the stock would be rec-
■ Stocks for kids
ognized on the child’s income tax return—as
opposed to the parents’—and would likely
benefit from lower tax rates.
However, transferring stock to a child
after it has already been purchased by a parent
may be slightly trickier. When transferring
stock to a third party, the transfer has to occur
at fair market value. What this really means is
that the stock needs to be “sold” at the market
price and then “purchased” by the third party.
To use real numbers, if Dad bought the
stock for $50 and the market price is now
$100, to transfer it to his daughter, Dad would
have to report a $50 capital gain on his tax
return. Daughter would then be considered to
have acquired the stock at $100 and would
use that as a base for calculating any future
capital gains after her 18th birthday.
Note that because of “kiddie tax” rules, all
income earned from the stocks before a child’s
18th birthday is attributed to the parents. This
means that all T-slips issued from the stocks
(T3s or T5s) should be recorded on the parents’ T1 returns. While unfortunately that
means paying children’s taxes for now, it
means that you’ll be able to avoid future capital gains taxes when they sell the stock after
their 18th birthday.
Josh Zweig, CPA,CA,LPA, Live.ca
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