Understanding the tax implications of co-signing a child's mortgage
Jamie Golombek writes the "Tax Expert" column in the National Post. In the spirit of enlightenment, we share Jamie's recent article with every parent who has ever wanted to help one of their children.
"One of the most common ways a parent can help out a child is to either gift or loan them money to assist them in financing their first home. Alternatively, parents who either can't afford to make a gift or loan, or perhaps simply don't want to, may still be in a position to do the next best thing - guarantee the mortgage on their kid's home.
The Canada Revenue Agency recently responded to a taxpayer inquiry involving such a loan guarantee. In the case in question, two taxpayers we will call Jack and Diane were getting a divorce and Diane wanted to buy her own home. Her parents co-signed for the mortgage so she could purchase the new home since she already owned an existing home with Jack that they were trying to sell.
Diane's parents neither lived in the new home nor contributed any money toward the purchase of the home, nor did they pay for any of the utilities, property taxes or repairs. Diane and her parents also signed a document stating that the parents "have no financial interest in the home." Notwithstanding all this, however, Diane's parents hold legal title to the new home since they were required to co-sign for the mortgage.
Diane's parents also own their own home in another city, which they have lived in for many years. Diane and her parents would like to leave their names on the title of the new home since they want to avoid paying land transfer tax to have their names removed from the property. Diane wrote to the CRA..." read more
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