Jonathan*, father of a 5-year-old daughter, owns a condominium. His new spouse, Audrey*, has just sold her property to move in with him. For now, she pays him rent, but she wants to buy 50% of the condominium soon. The couple also have several projects, such as having children in a few years, and Jonathan plans to build two chalets on a lot soon. But right now, the big question he is asking is: will there be tax impacts to this real estate transaction that he will carry out with his spouse?
Numbers
Jonathan, 33, entrepreneur
Annual revenue: $170,000
Audrey, 30, optometrist
Annual income: $125,000
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Buy a share of the property
First, Hadi Ajab, independent financial planner and mutual fund representative with PEAK Investment Services, congratulates the couple for putting their financial cards on the table. “It’s when the couple is harmonious that you have to start talking about finances and establishing the basics of how things will work,” he says. This is a guarantee of success for the couple who show great maturity. Everyone should do the same. »
In his view, however, there are several other important questions to ask before thinking about taxation. First, the couple must agree on the value of the condo. “Here, it seems to be the case with $550,000, but it is always possible to validate by looking at whether neighbors have sold their property recently, and at what prices,” specifies the financial planner.
He adds that if the two people in the couple do not get along, it is possible to hire a certified appraiser to determine the market value of the condo.
Since Jonathan has a mortgage of $326,000, that means the condominium has an equity right now of $224,000.
Jonathan and Audrey have already decided that each will own 50% of the condominium. So Audrey would have to give Jonathan $112,000 and then pay half the mortgage with him. “In order for Audrey to become a co-borrower, the couple must go back to Jonathan’s financial institution to redo the mortgage in both names,” says Ajab. Since the amount of the loan, its rate and its term will not change, it is quite possible that the couple will not have to pay a penalty. »
PHOTO MARTIN TREMBLAY, THE PRESS
Hadi Ajab, independent financial planner and mutual fund representative with PEAK Investment Services
–
The couple will also have to go to the notary to put Audrey’s name on the title of the property so that she becomes co-owner. “It’s important,” says Mr. Ajab, “because it gives both spouses the same rights to the property. So, if things ever go wrong, Jonathan couldn’t just kick Audrey out! »
In this case, Jonathan and Audrey each want to own 50% of the property, but they could have opted for different percentages, such as 40-60 or 30-70. “On the other hand, it should be documented with the notary, because otherwise, we take it for granted that the co-owners are 50-50”, specifies Mr. Ajab.
Protect common-law spouses
As long as going to the notary, Hadi Ajab is of the opinion that the couple should take the opportunity to produce certain documents, starting with the will. “Since the couple is not married, if ever Jonathan dies without a will, half of the condo will go to his minor child and the mother will act as legal guardian”, he specifies.
In the event of Audrey’s death, her family would inherit.
“To avoid complications, each spouse could bequeath his half of the condo to the other and take out life insurance, if necessary, if they want to bequeath larger amounts than the rest of their assets to their other heirs, says Hadi Ajab . Jonathan could also use the life insurance to provide for his daughter’s needs, should he ever die. »
The couple could also look at their disability, critical illness and life insurance needs to ensure that the mortgage would be paid, should one ever become ill or die.
Jonathan and Audrey would also benefit, underlines Mr. Ajab, from drafting a cohabitation contract where they would include in particular how they will share expenses and responsibilities, then what would happen in the event of separation.
“You can also name the other spouse as a representative in the cohabitation contract, which means that he could make important decisions about the property if necessary, if the other is absent,” he says. .
He advises the couple to also make protection mandates, what used to be called mandate of incapacity.
think about taxes
As for the tax issue, which is Jonathan’s great concern, it does not pose a problem, according to Hadi Ajab. “For Jonathan as for Audrey, we are talking about transactions that are made on their principal residence, so capital gains are not taxable,” he specifies.
On the other hand, Jonathan wishes to build two chalets on his land. “It’s when he sells these chalets that he will have to be careful, because the capital gains on the second home are taxable at 50%,” says the financial planner.
When he sells a cottage, Jonathan could however designate it as his principal residence even if he spent only a short time there and thus avoid the capital gain on this cottage being taxed.
“But of course, that’s not possible if the chalet is rented out all the time,” explains the financial planner. In a given year, only one property can be designated as a principal residence. »
However, he advises the couple to think now about their taxation with respect to their investments. “After the real estate transactions, everyone will have more than $110,000 to invest,” he notes. Everyone will have to look at what is most interesting in their situation, such as contributing to their RRSP or their TFSA. »
Jonathan also has to think about a Registered Education Savings Plan (RESP) for his daughter. Also, should Jonathan and Audrey invest in tax-advantaged non-registered investments or use part of the money to pay down the mortgage? “Their choices will have to depend on their goals and risk tolerance,” says Ajab. But, one thing is certain, they are in good financial shape, and to make the best decisions, the couple needs good financial planning. »
* Although the case highlighted in this section is real, the first names used are fictitious.
Are you planning a project that requires a wise use of your money? Do you have financial problems?
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Martine Letarte
special cooperation
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The situation
Jonathan*, father of a 5-year-old daughter, owns a condominium. His new spouse, Audrey*, has just sold her property to move in with him. For now, she pays him rent, but she wants to buy 50% of the condominium soon. The couple also have several projects, such as having children in a few years, and Jonathan plans to build two chalets on a lot soon. But right now, the big question he is asking is: will there be tax impacts to this real estate transaction that he will carry out with his spouse?
Numbers
Jonathan, 33, entrepreneur
Annual revenue: $170,000
Value of his condominium: $550,000 with mortgage of $326,000
Land valued at $20,000
Registered Retirement Savings Plan (RRSP): $65,000
Tax-Free Savings Account (TFSA): $18,000
Value of the SME: 9 million, which he owns at 40%
Audrey, 30, optometrist
Annual income: $125,000
Sale price of his condominium: $500,000 with mortgage of $275,000
REER: $ 45 000
TARGETS: $ 25,000
–
Buy a share of the property
First, Hadi Ajab, independent financial planner and mutual fund representative with PEAK Investment Services, congratulates the couple for putting their financial cards on the table. “It’s when the couple is harmonious that you have to start talking about finances and establishing the basics of how things will work,” he says. This is a guarantee of success for the couple who show great maturity. Everyone should do the same. »
In his view, however, there are several other important questions to ask before thinking about taxation. First, the couple must agree on the value of the condo. “Here, it seems to be the case with $550,000, but it is always possible to validate by looking at whether neighbors have sold their property recently, and at what prices,” specifies the financial planner.
He adds that if the two people in the couple do not get along, it is possible to hire a certified appraiser to determine the market value of the condo.
Since Jonathan has a mortgage of $326,000, that means the condominium has an equity right now of $224,000.
Jonathan and Audrey have already decided that each will own 50% of the condominium. So Audrey would have to give Jonathan $112,000 and then pay half the mortgage with him. “In order for Audrey to become a co-borrower, the couple must go back to Jonathan’s financial institution to redo the mortgage in both names,” says Ajab. Since the amount of the loan, its rate and its term will not change, it is quite possible that the couple will not have to pay a penalty. »
PHOTO MARTIN TREMBLAY, THE PRESS
Hadi Ajab, independent financial planner and mutual fund representative with PEAK Investment Services
–
The couple will also have to go to the notary to put Audrey’s name on the title of the property so that she becomes co-owner. “It’s important,” says Mr. Ajab, “because it gives both spouses the same rights to the property. So, if things ever go wrong, Jonathan couldn’t just kick Audrey out! »
In this case, Jonathan and Audrey each want to own 50% of the property, but they could have opted for different percentages, such as 40-60 or 30-70. “On the other hand, it should be documented with the notary, because otherwise, we take it for granted that the co-owners are 50-50”, specifies Mr. Ajab.
Protect common-law spouses
As long as going to the notary, Hadi Ajab is of the opinion that the couple should take the opportunity to produce certain documents, starting with the will. “Since the couple is not married, if ever Jonathan dies without a will, half of the condo will go to his minor child and the mother will act as legal guardian”, he specifies.
In the event of Audrey’s death, her family would inherit.
“To avoid complications, each spouse could bequeath his half of the condo to the other and take out life insurance, if necessary, if they want to bequeath larger amounts than the rest of their assets to their other heirs, says Hadi Ajab . Jonathan could also use the life insurance to provide for his daughter’s needs, should he ever die. »
The couple could also look at their disability, critical illness and life insurance needs to ensure that the mortgage would be paid, should one ever become ill or die.
Jonathan and Audrey would also benefit, underlines Mr. Ajab, from drafting a cohabitation contract where they would include in particular how they will share expenses and responsibilities, then what would happen in the event of separation.
“You can also name the other spouse as a representative in the cohabitation contract, which means that he could make important decisions about the property if necessary, if the other is absent,” he says. .
He advises the couple to also make protection mandates, what used to be called mandate of incapacity.
think about taxes
As for the tax issue, which is Jonathan’s great concern, it does not pose a problem, according to Hadi Ajab. “For Jonathan as for Audrey, we are talking about transactions that are made on their principal residence, so capital gains are not taxable,” he specifies.
On the other hand, Jonathan wishes to build two chalets on his land. “It’s when he sells these chalets that he will have to be careful, because the capital gains on the second home are taxable at 50%,” says the financial planner.
When he sells a cottage, Jonathan could however designate it as his principal residence even if he spent only a short time there and thus avoid the capital gain on this cottage being taxed.
“But of course, that’s not possible if the chalet is rented out all the time,” explains the financial planner. In a given year, only one property can be designated as a principal residence. »
However, he advises the couple to think now about their taxation with respect to their investments. “After the real estate transactions, everyone will have more than $110,000 to invest,” he notes. Everyone will have to look at what is most interesting in their situation, such as contributing to their RRSP or their TFSA. »
Jonathan also has to think about a Registered Education Savings Plan (RESP) for his daughter. Also, should Jonathan and Audrey invest in tax-advantaged non-registered investments or use part of the money to pay down the mortgage? “Their choices will have to depend on their goals and risk tolerance,” says Ajab. But, one thing is certain, they are in good financial shape, and to make the best decisions, the couple needs good financial planning. »
* Although the case highlighted in this section is real, the first names used are fictitious.
Are you planning a project that requires a wise use of your money? Do you have financial problems?
–
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