Question

Jennifer owns a rental property with an ACB of $375,000. The rental property, in the past, has consistently yielded net rental income of $24,000 per year. As Jennifer is nearing 80 years old, she is thinking of downsizing and divesting some of her assets; the rental property being the first one she is going to dispose of. Jennifer contacted a realtor who told her that similar properties in the area had sold for $800,000. For each of the scenarios below, tell Jennifer the tax implications (capital gains and all attribution of income) of her decision. Also include in your analysis the ACB for the new owner of the rental property.

a) Jennifer gives the rental property to her son, who is 47 years old.

b) Jennifer sells the rental property to her much younger husband for $800,000.

c) Jennifer sells the rental property to her brother-in-law’s sister (42) for $300,000.

d) Jennifer gives the rental property to her granddaughter, who is 14 years old.

Answer 1

More than tax implication, the capital matters. So Jennifer should ideally give to her son who will take care of her if the property is going to appreciate in future. If property is not going to appreciate, Jennifer should sell the rental property to her younger husband for $800000. Selling for $300000 to brother in law's sister is not advisable as she has grown old. The money of $800000 received from her younger husband or outsider will take care of her old age if the property is not going to appreciate in future.

$800000 comes within the lifetime exemption limit and so giver does not have to pay taxes on gifts. Hence gifts will not be subject to taxes. Both a and d are not taxable. The ACB for the receiver will be $ 375000.

$425000 will be treated as capital gains under b. ACB will be $800000 to the younger husband.

$75000 will be treated as capital loss by Jeniffer. The ACB will be $300000 to brother in law's sister.