Ask Allan Forum
Get expert answers to your tax questions straight from Allan, our owner and experienced CPA. It’s free, direct, and designed to help you make the best decisions when it comes to your taxes.
Hi Allan,
Thank you for all of the great content that you've made available on your website - much appreciated!
See below for facts leading up to my questions:
- My father is an M.D. and has his own medical corporation (CCPC).
- The shares of the CCPC are owned by my dad, my mom and three children (one of which is myself).
- In 2009, the CCPC purchased a house in the lower mainland for me (a shareholder) to live in while attending university. Purchase price was $511k.
- The house has 2 rental suites which have both been rented since 2009. Rent received from those suites is reported as rental income by the CCPC.
- I have not paid rent to the CCPC while I've been living in the house.
- The value of the house has more than doubled, with current market value sitting between $1.2m-$1.5m.
- We want to transfer ownership of the house from the CCPC to myself so that I can claim it as my principal residence, and want to do this in the most tax-efficient way possible given the appreciation in value.
Questions:
- Is it possible to "gift" or "transfer" a house owned by a CCPC to a related party on a tax deferred basis, in this case a shareholder of the company?
- Assuming the answer to the question above is no, could I obtain a vendor take-back mortgage from the CCPC or issue a promissory note to the CCPC to cover the shortfall between the cash that I currently have available and the market value of the house? Or would the CCPC need to show that cash was received in full once the transaction has closed? Obtaining a mortgage is not an option for me, so looking to see whether the CCPC could act as the 'bank.' There is enough money currently sitting in the CCPC to pay the capital gains tax that would be triggered upon the sale.
- Another option that I read about was potentially setting my own holding company and then transferring the house from the CCPC to Holdco. However, this option would not allow me to access the principal residence exemption when I eventually sell the house, correct? And would I also have to pay rent to Holdco?
- If my dad decided to wind up his corporation, what would happen to the house? Could he transfer ownership of the house to me after paying all of the applicable taxes?
Thanks in advance for any insight you are able to provide!
Thank you for your kind feedback. Your Dad's CCPC (Dad Inc.) can do the following:
1. Gift the property to you. This will be treated as a deemed disposition and capital gains tax will be triggered, payable by Dad Inc. Furthermore, the gift will be treated as a taxable benefit to you, so I do not recommend this strategy.
2. Sell the property to you at fair market value in exchange for cash and a promissory note for the balance owing. This will trigger a capital gain for Dad Inc. The amount of the promissory note will be taxable to you unless you repay the entire balance owing within 1 year.
3. Arrange a mortgage from a bank with a cash down-payment, and purchase the home outright from Dad Inc. at market value. This will trigger a capital gain for Dad Inc, and there will not be a taxable benefit to you.
4. Rollover the property to a holding company (pursuant to Section 85 of the Income Tax Act) and you pay rents at market rates to the holding company. You will not be the owner of the home, but you will become a tenant