For many Ontario parents, gifting a home to their children feels like a meaningful way to help the next generation gain financial stability. Rising home prices and high borrowing costs have made it difficult for many young adults to enter the housing market, so passing down a family home or transferring property early can seem like a helpful solution. However, gifting real estate in Ontario comes with important rules, tax implications and legal considerations that every family should understand.
This guide explains the key factors to consider when gifting a home to your children in Ontario, whether it is a primary residence, cottage or investment property.
The Difference Between Selling and Gifting a Home
A gift of real estate occurs when you transfer ownership to your child for less than fair market value or for no money at all. Although it feels like a private family decision, the Canada Revenue Agency and the Province of Ontario each have rules that apply to this type of transfer.
Parents can choose to:
- Transfer the property for no payment
- Transfer the property at a discounted price
- Add a child to the title
- Transfer only a portion of the ownership
Each choice has tax implications for both the giver and the receiver. In some cases, what seems like the simplest option can create unintended financial consequences. This is why planning ahead is essential.
Capital Gains Tax When Gifting a Home
The most significant tax consideration when gifting a property in Ontario is capital gains tax. Even if no money changes hands, the CRA treats the transfer as if you sold the property at its current fair market value.
When capital gains apply
Capital gains may apply if the property is:
- A cottage
- An investment property
- A rental unit
- A second home
If the property has appreciated in value, the gain may be taxable. Since parents are considered to have sold the home at fair market value, the tax bill can be substantial.
When capital gains do not apply
If the property is a true principal residence for every year you owned it, the sale may be exempt from capital gains tax. However, if the home was used for rental income, business use or was not your principal residence for some years, a partial exemption or no exemption may apply.
Land Transfer Tax When Gifting Property
In Ontario, the person receiving the property is usually responsible for land transfer tax. This applies even when the property is transferred as a gift. The tax is based on the fair market value of the property on the day it is transferred.
When land transfer tax does not apply
There may be exceptions when:
- The transfer is between spouses
- The transfer involves a mortgage assumption under certain conditions
- The transfer occurs as part of a separation
However, gifts to children generally do not qualify for these exemptions.
Families in Toronto also need to consider the additional Toronto Land Transfer Tax.
Mortgage Considerations When Gifting a Home
If there is an existing mortgage on the property, the situation becomes more complex. A lender must approve any changes to ownership. Children may need to qualify for the mortgage on their own unless the parents fully pay it off before the transfer.
Key questions include:
- Will the child assume the existing mortgage
- Will the lender require a refinance
- Can the parents remove themselves from the mortgage without penalty
- Is the property insured under the new ownership structure
Families should speak with a mortgage professional before making any decisions, especially if refinancing is required.
Adding a Child to the Title: Risks and Realities
Some parents believe that adding their child to the title of the home is a simple and beneficial option. While it may avoid probate tax later, it creates important legal and financial risks.
Adding a child to the title may:
- Expose the home to the child’s creditors
- Affect the child’s marital property rights
- Trigger capital gains for the portion transferred
- Limit financing or refinancing options
- Cause family disputes if there are multiple children
Before changing title, it is important to consider how the arrangement may affect all parties involved.
The Importance of Fair Market Value
Whether you transfer the home for no money or for a reduced amount, the CRA requires that the fair market value be used when determining capital gains tax. This protects the tax system from undervalued transfers and ensures that taxes are calculated using accurate property values.
Families often hire a certified appraiser or work with a real estate professional to determine the fair market value at the time of transfer.
Using a Lawyer for the Transfer
Real estate lawyers play a central role in gifting property. They prepare the transfer documents, calculate applicable taxes, update the title and ensure the family understands the legal implications. They can also help draft agreements if parents plan to maintain certain rights, such as living in the home after the transfer.
Exploring Alternatives to Gifting a Home
Some families choose alternatives that offer financial support without transferring the property immediately. These may include:
- Co signing a mortgage
- Providing a down payment gift
- Setting up a trust
- Selling the home to the child at full market value while gifting the proceeds back
Each option has different tax, mortgage and legal considerations.
Final Thoughts
Gifting your home to your children can be a generous and meaningful act, but it comes with complex tax rules and legal obligations in Ontario. Before making a decision, families should understand the long term consequences for both the giver and the receiver. Proper planning, professional advice and clear communication can prevent financial surprises and protect family relationships.
If you would like guidance on the mortgage implications of gifting a property or need support planning a transfer, you can reach out to The Local Broker anytime at https://thelocalbroker.ca/contact/.
