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My parents want to give me one residential house as a gift. My parents bought that house in 1989. If I transfer that property to my name and keep for some time or sell immediately then how CRA calculate capital gain. Let’s say bought by parents in $5000 in year 1989. Now its actual value is $200,000. If my parents is ready to transfer that property to my name as a gift (in 2018) and after transferring I’ll sell that property immediately then How CRA will consider capital gain as per 2018 transfer value or purchase price in year 1989. I’ll take-care back home long term gain but not clear about Canadian Tax system. Pls. Guide me. Thanks in advance.
Hi Mohan, thank you for your question. When a gift of property is made, the proceeds of disposition are deemed to be equal to the market value of the property at the time of the gift. In your example, the proceeds of disposition would be $200,000, resulting in a capital gain of $195,000 (i.e. $200,000 - $5,000).
If your parents occupied this property as their primary residence for all of the years that they owned it, then the capital gain will be exempt from tax. However, if this property is an investment property, then one half of the capital gain of $200,000 will be taxable to your parents at their marginal tax rate.
If you then sell the house in the future, your capital gain will be equal to the selling price less $200,000 (your cost basis in the property). Note: Since you are a non-resident of Canada, withholding tax of 25% will be deducted from the gross sales proceeds, when you sell the property in the future. This tax can be recovered by filing an Application for a Certificate of Compliance with the CRA.