A building is definitely an important investment in a lifetime, it is thus essential to plan what you want to do with it to make it as profitable as possible, either by assigning it to your children, by selling it to keep the profit, or by passing it on by will. What one realizes is that, although they are increasingly informed by the complexity of the choices available to them, people do not necessarily know what is best to do with their dwelling. Thinking about what you want to do with this investment helps to protect your assets as much as possible.
The aim of this paper is to provide general information to disentangle different situations and enable you to go to the right people and have some tools on hand to make an informed decision regarding your situation.
For the transfer of a dwelling, you have the choice to do it when you are alive, if you do not wish to have this obligation anymore, but you may also wish to transfer it at the time of your death. The financial and fiscal implications can have an impact on this decision. Proper preparation of the appropriate documents in order to foresee unexpected situations such as incapacity or death is also needed to avoid discord on both sides.
TO GIVE OR SELL
If you want to dispose of your building during your lifetime, you can always sell it to a third party and hopefully, we wish, realize a profit. Capital gains, that is to say, the profit from the sale is generally taxed at 50% of the profit made. It is thus half of the gain that is added to your income. There is an exemption for a maximum amount that can be used all throughout your life, which can influence your decisions, according to whether you have already used it or not. Also note that no tax is payable for the residence designated as a principal residence, since it is exempt, under certain conditions.
If you prefer that the dwelling remains in the family you should know that there are tax issues that one must consider carefully, according to your case. One should thus usually go to an accountant who will assess your situation. Whether the transfer takes place by sale, assignment, or gift, the most important thing to understand is that there are different tax implications depending on the price, depending on the value of the property when the transaction is between related persons say. Whenever you make a transaction with a person being related to you, i.e. mostly people in your family or related by marriage, common law, adoption, the law provides for punitive rules if you do not respect the market value. For instance, if you sell a dwelling for less than it is actually worth to a member of your family, the law provides that you will be taxed as though if you had sold it at its real value, so as if you would have made a profit while this is not the case. The person to whom you sold it will also be penalized on his tax return, so there is what one calls the so-called double taxation.
During a donation, the giver is again penalized at the level of his tax return, so in all cases the seller must pay tax on profit that is not received. For the person who receives the gift it is generally more advantageous because that person will pay tax on the profit actually realized only.
TRANSFER AT THE TIME OF DEATH
Do you know what will happen to your dwelling and your other assets upon your death? Perhaps you know since you have already made a will. If you did not make one already you should know that the rules of the Civil Code of Quebec (C.c.Q) will apply to settle your estate, so it is the Law that will decide who will inherit your property and how it will be managed! Be aware of the fact that the will remains your best estate-planning tool because it is possible to predict in it what you really want for your estate.
Vesting of property
First, if you do not have a will, and if you are married or in a civil union, the law provides that your spouse inherits one-third (1/3) of the estate and your children two-thirds (2/3 ). In case you do not have children then your spouse will inherit two-thirds (2/3) while your parents, siblings, or nephews and nieces inherit one-third (1/3).
Marital status Children Spouse Father and Mother Brothers and Sisters
Married couple with children 2/3 1/3
Unmarried couple with children 100%
Married couple without children 2/3 1/3
Unmarried couple without children 1/2 1/2
Beware, because the concept of “spouse” causes many misunderstandings! Indeed, the definition is different for each law. In the Civil Code of Quebec, the law governing succession, Article 653 of the C.c.Q clearly explains that, unless there is a will, the only spouse that may inherit is the married or civilly united one. The fact that you have been living together for a very long time, that you have children together, or that all your goods have been purchased together for years does not change that at all. If you are not married or in a civil union and if you do not have a will, you will not inherit from your partner. Thus, it is the children of your spouse who will inherit according to the Law, of all his/her possessions, including his part in homes and apartment buildings.
The will allows you to avoid this sharing and to choose to whom your assets will be legated. Indeed, testamentary freedom, that is to say, the right to bequeath our properties to whom we want without restriction, is a concept recognized and established by Quebec law. The will allows to bequeath property as being elusive to the creditors of the heirs or to opt for certain strategies, such as offering the use of the residence to someone for a certain period of time and the property to another, for instance. The will facilitates the settlement of the estate, particularly because one must respect the will of the testator.
It is important to know that the bequest that is made to the spouse, married or in a civil union, is terminated by divorce or dissolution of a civil union. However, be aware that if you are married or in a civil union, division of property being part of the family patrimony or acquests according to your matrimonial regime, can lead to a debt in favour of the surviving spouse. For this reason, your estate may have a debt to your spouse even if you have disowned him/her with a will.
The transfer of a dwelling and what happens in case of death
