Principal Residence gifted to our son. Did our Real Estate lawyer make a mistake? Consequences?

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Jennifer (anonymous) Posted 2 days ago MadanCA Team edited answer 2 hours ago

1. I & my husband transferred our Principal Residence to our son & daughter in law. Was intended as a GIFT. This is our only house, no other house besides that. Also our sons only house.

2.But NO official gift deed was signed. No official sale or purchase deed was signed either. No Real estate agents were involved. Only our Real estate lawyers were involved. No Chartered Accountants (CPA) were involved in this transaction. Now looking back maybe it was a mistake.

3. LRO – Land Registry Office – Parcel Register for Property Identifier shows the following:

A. Property Description
B. Owners Names : My Sons name & my DIL name
C.Registration Number: PR410xxxx
D. Date: dd/mm/yyyy (actual date of transfer)
E. Amount : $2
F.Instrument Type : TRANSFER
G. Parties From : My & Husbands Name.
H. Parties To: Son & DIL name.

4. LAND TRANSFER TAX STATEMENTS:

A. Total consideration for this transaction is allocated as follows:

a. Monies paid or to be paid in cash : $ 0
d. Fair market value of the land : $0
g. Value of land subject to land transfer tax: $0
i. Total Consideration: $0

B. Explanation for nominal considerations:
Other: Inter-family transfer for love & affection.

5. Another Document which has following information:

LRO# XX Transfer

A. Property Description
B. Consideration: $2
C. Transferors : My & Husbands Name
D. Transferee: Son & DIL name
E. Provincial Land Transfer Tax: $0
F. Transferor Client File Number – dd/mm/yyyy

—–
Now I am really worried. Was this really a GIFT transfer to my son for NIL consideration according to CRA? Or was it a sale or transfer for $2.00 according to CRA to my son? No gift deed was signed. No purchase or sale deed was signed either!

FMV of the house was probably $ 1 Million on the date of transfer. House was bought by us for about $ 250,000/- . Owner occupied throughout, never rented & principal residence all the years till the date of transfer to our son.

In the year of disposition in our tax return Form T2091IND was filled by us. Designation of Property as a Principal Residence. Year of acquisition was put in it and Proceeds of disposition were put as $2.00 on it.

1 Did we do anything wrong? By not signing a GIFT deed and transferring our principal house to our son for $2.00 instead of NIL?
2. Any penalty, interest, wilful or gross negligence or capital gains we are looking at ?
3. Any illegal thing we did or our son did?
4. Any penalty, interest, charges our son is looking at? Is his cost of acquisition considered to be $2.00 or FMV of $ 1 million? Does he also gets a Principal Residence Exemption when he sells his house in future or no? That’s his only house.

Do we have to do anything now to rectify the above? Like refiling, T1-ADJ, Voluntary Disclosure etc? Or we are perfectly fine and so is our son, and we have not done anything illegal, fraud, tax evasion etc.

Thanks in advance. Really appreciate your expert knowledge on all this.

1 Answer

score 0 · Answer 1 · 2025-04-18T23:57:41+00:00

Hi Jennifer,

Thank you again for providing the detailed background. I understand your concerns, and I’ll address your questions point by point based on how the CRA typically views inter-family property transfers.

1. Was the transfer a gift or a sale for $2 in CRA’s view?

Although the Land Registry records the consideration as $2, the CRA considers any non-arm’s length transfer, such as a gift to a child, to have occurred at fair market value (FMV) for tax purposes — not the nominal value shown on the land transfer documents.

So, even if the documents say $2, the CRA will deem the selling price to be $1,000,000 (the approximate FMV), and this is the amount that should be reported on your tax return.

2. Importance of a Gift Letter

To protect your son and daughter-in-law, I strongly recommend preparing and signing a formal gift letter, signed by both you (the transferors) and your son and daughter-in-law (the transferees). This letter should clearly state that:

The property was transferred as a gift;
No consideration (money or otherwise) was exchanged;
The intention was to gift the property in full, and not to sell or transfer for value.

Without a properly documented gift, there’s a risk that CRA could reduce your son’s cost base to $2, even though the deemed proceeds of disposition on your end will still be considered $1,000,000. This would result in a situation of double taxation: once now (on your deemed sale), and again when your son eventually sells the property — since his gain would be calculated from a $2 cost base rather than $1 million.

3. Correction of Tax Filings

It would be prudent to file an adjustment to your personal tax return to:

Amend Form T2091 (Designation of a Property as a Principal Residence) to reflect $1,000,000 as the proceeds of disposition;
Update Schedule 3 (Capital Gains) to show the same amount.

Since the entire gain is likely exempt under the Principal Residence Exemption, you will not owe additional tax, but correcting this ensures CRA has the correct information on file and prevents potential issues down the line.

4. Impact on Your Son

With a properly documented gift and correction of your return, your son’s cost base for the home will be the fair market value at the date of transfer (i.e., $1,000,000). This will allow him to correctly calculate any future capital gain if/when he sells the property.

As long as it remains his only and primary residence, he should also be eligible to claim the Principal Residence Exemption in the future.

5. Summary

You have not done anything illegal or fraudulent.
A gift letter should now be signed to confirm intent and support the FMV cost base.
We recommend filing a T1-ADJ to amend Form T2091 and Schedule 3.
No penalties or interest are expected, as the original error was not willful and no tax was avoided.

Let me know if you’d like help drafting the gift letter or if you’d like me to handle the adjustment to your tax return.

Principal Residence gifted to our son. Did our Real Estate lawyer make a mistake? Consequences?

1 Answer

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