Donation of part or all of the rental property

Adding a name to a property itself does not trigger capital gains tax. There is a difference between legal ownership (whose name is on the title) and beneficial ownership (who technically owns the property). If only the legal ownership changes, but not the beneficial ownership, there may not be a tax event.

For example, an elderly parent might put their child’s name on their bank account or on the deed of their home. They might do this because they believe it will make it easier to deal with the assets when they age, or to avoid inheritance tax. In these situations, a power of attorney or similar estate planning document (depending on the province or territory) may be better. The asset may not fall out of probate and avoid probate if beneficial ownership remains with the parent. Putting a child’s name on the deed can also pose risks, including creditor problems if the child is sued, family law disputes if the parents divorce, and elder abuse because the children have access to the asset.

Was there a fictitious order?

In your case, Flo, it sounds like your husband was planning to sell part of the property. Did he document this with a lawyer or did he simply put your daughter’s name on the rental property? Does she now get half of the rental income?

A genuine intent to transfer results in a deemed disposal of half the property at fair market value. This is the equivalent of selling part of the property and will be taxable when your husband files his tax return next year.

Dealing with the increased capital gains tax rate

It appears your husband has added your daughter to the land registry due to the increase in the capital gains tax rate on June 25, 2024.

As of that date, the inclusion rate for individuals on a capital gain of $250,000 or more in a single year increased from half to two-thirds. This means that two-thirds of the capital gain is taxable, rather than just half (as was the case before June 25). Only the capital gain over $250,000 is subject to the higher tax rate. (For corporations and trusts, the inclusion rate for all capital gains is two-thirds.)

You mention, Flo, that this was done for estate planning reasons. I assume you intend to keep the property for the rest of your life. If that could take many years, it may not be beneficial to accelerate the payment of capital gains tax. Some of the capital gain will likely still be subject to the higher tax rate – no matter what – and it could be detrimental to pay the tax sooner than necessary.

I mention this not as a criticism, but because if you did not specifically document your intention and simply entered your daughter’s name on the land registry, you may want to reconsider. You should do some tax calculations with your tax advisor and discuss documenting the transfer with your attorney.