A current trend in the increasingly expensive Canadian housing market is parents helping children or grandchildren and their spouses with a down payment or mortgage on a first home. In Ontario, about 35% of people buying homes now receive assistance from their relatives with a down payment and approximately 38% have a down payment of 20% or more. To see statistics for down payment assistance across the country, please refer to this link. Although such financial assistance is helpful for a child or a young couple looking to get into the housing market, this generous gesture can lead to unexpected and undesired consequences and even disputes, including upon a child's marital breakdown. Without having done the proper planning or evidencing their intention, parents may even see a child lose their gift to a former spouse.
Most taxpayers know that when you sell an asset which has increased in value, the federal Income Tax Act provides that you will generally be liable for capital gains tax on the net increase in value, unless there is an applicable exemption. One exemption from capital gains tax is for a principal residence. In October of 2016, the federal government introduced draft legislation to amend the rules to restrict the application of the principal residence exemption. The amendments are aimed at stopping non-residents of Canada and real estate developers from unreasonably claiming the exemption. However, the amendments can also affect anyone who currently has or may wish to have a trust which holds a residence for a beneficiary, whether or not they are tax resident in Canada.
A common consideration when completing or updating your estate planning is often how best to protect assets in the event of marital breakdown--whether your own marriage, including a second marriage, or an intended beneficiary's (e.g., a child or grandchild). The need to protect certain assets may be even more pressing when the property is a home or cottage that has been in a family for generations, carrying strong emotional ties and significant memories. Protecting this property can be complicated, however, if it qualifies as a matrimonial home under Ontario's Family Law Act.
If you own a family cottage or other vacation property, it may not be just a financial asset but an emotional investment for you as well, and therefore proper planning for this special asset is especially important in order to meet all your future goals for it. The financial aspects of estate or succession planning for your vacation property should, of course, be addressed; for example, it is important to ensure there are sufficient cash or other liquid assets in your estate to pay the potentially significant tax liability on your death if there is a long-term increase in the value of the property. However, keeping your family vacation property from becoming subject to claims on marriage breakdown, including a child's, or other beneficiary's, can, in some cases, prove even more important.