Land Transfer Tax Exemption: “Natural Love & Affection”
In Ontario, it is permissible to transfer property to loved ones without paying Land Transfer Tax (LTT), subject to certain requirements & provisos.
Generally speaking, if there is no consideration of monetary value flowing between the donor (the person gifting the property) and the receiver (the person accepting the property as a gift), then no LTT will be payable on the deal. In order to claim the exemption, the parties must file an LTT Affidavit (required upon the transfer of any property in Ontario…), and specify that the transfer is for “natural love & affection”. When the receiver makes this election, the transfer is deemed to occur for no monetary value.
However, there are important qualifications to the natural love & affection LTT exemption.
For instance, if the gift of the property includes the assumption of a mortgage or other liabilities by the receiver, then the value of this mortgage and/or liabilities is deemed to be “of value” to the donor, and must, in most cases, be included in the LTT affidavit. In this case, LTT will be payable on the value of the mortgage or liability assumed by the receiver. For example, in the event of a transfer by gift of a property from parents to a child, and the property contains a mortgage balance of $200,000 at the time of transfer, then LTT would apply to the transaction – the parents are receiving a benefit of discharging their liability for the mortgage.
Or, let’s vary the situation slightly: if the parent transfers a property by gift to a child, and the child pays off the mortgage at the time of transfer, then LTT will be payable on the value of the mortgage paid off by the child. However, when we look at gift property transfers between spouses, then it possible that LTT will not apply, because there is an LTT exemption for a property between spouses or former spouses.
Notwithstanding that LTT may not be payable in the instance of a gifting of real property, it is very likely that capital gains tax will apply to the donor’s disposition of property at fair market value. This means that, in situations involving the transfer of land to family members, spouses or non-arm’s length persons, it is advisable to seek tax & accounting advice in addition to legal advice.
We advise our clients on all aspects of real estate conveyance, ownership and transfer. And this issue comes up often. Contact me if you wish to discuss anything in this article or real estate law in general.
In Ontario, it is permissible to transfer property to loved ones without paying Land Transfer Tax (LTT), subject to certain requirements & provisos.
Generally speaking, if there is no consideration of monetary value flowing between the donor (the person gifting the property) and the receiver (the person accepting the property as a gift), then no LTT will be payable on the deal. In order to claim the exemption, the parties must file an LTT Affidavit (required upon the transfer of any property in Ontario…), and specify that the transfer is for “natural love & affection”. When the receiver makes this election, the transfer is deemed to occur for no monetary value.
However, there are important qualifications to the natural love & affection LTT exemption.
For instance, if the gift of the property includes the assumption of a mortgage or other liabilities by the receiver, then the value of this mortgage and/or liabilities is deemed to be “of value” to the donor, and must, in most cases, be included in the LTT affidavit. In this case, LTT will be payable on the value of the mortgage or liability assumed by the receiver. For example, in the event of a transfer by gift of a property from parents to a child, and the property contains a mortgage balance of $200,000 at the time of transfer, then LTT would apply to the transaction – the parents are receiving a benefit of discharging their liability for the mortgage.
Or, let’s vary the situation slightly: if the parent transfers a property by gift to a child, and the child pays off the mortgage at the time of transfer, then LTT will be payable on the value of the mortgage paid off by the child. However, when we look at gift property transfers between spouses, then it possible that LTT will not apply, because there is an LTT exemption for a property between spouses or former spouses.
Notwithstanding that LTT may not be payable in the instance of a gifting of real property, it is very likely that capital gains tax will apply to the donor’s disposition of property at fair market value. This means that, in situations involving the transfer of land to family members, spouses or non-arm’s length persons, it is advisable to seek tax & accounting advice in addition to legal advice.
We advise our clients on all aspects of real estate conveyance, ownership and transfer. And this issue comes up often. Contact me if you wish to discuss anything in this article or real estate law in general.
