2023-06-19 04:00:00
A reader asks me: “I would like to know if it is better to sell or rent your house when moving into a private residence for seniors (RPA). To put you in context, I am the sole owner of my house, I have a spouse who has no children, I have two children myself (40 and 30 years old) and my will stipulates that my children will have the house in equal shares. What will be the tax impacts of my decision, for me, but also for my children? »
As with all tax questions, the answer is “it depends”. For the sake of the article, we’ll stick to the basics, assuming the house is paid for. Ludovick Nadeau, tax specialist at Gestion Fiscal de l’Estrie, helped us answer the question.
1) Immediate sale
First, since it is a principal residence, the sale will not generate tax on the capital gain. Obviously, the children will no longer inherit the house, since it will have been sold. On the other hand, if you wish to give the children the amount of the gain following the sale, the gift will not be taxable.
If one of the two children wishes to take possession of the house, you could give them the equivalent of their share and the sum could be applied to the purchase as a down payment. There is also the option to inherit the house to the children during your lifetime. This is to be discussed with a notary.
2) Rental
It is certain that the income generated by the rental of the house would make it possible to pay part of the RPA. RPAs can be very expensive, so it all depends on how much money we have set aside. On the other hand, the house will become a rental property and will no longer be considered a principal residence from that moment on. You should therefore know that the profits from this rental will be added to your personal income and will have an impact on all the calculations of your declarations (taxable income, income used to calculate eligibility for certain credits, etc.).
In addition, the children, who will inherit the house at the time of your death, will receive their inheritance in “value”. If one of the two decides to take possession of the house, he will have to buy it from the estate (by paying the share of the other heir). For example, let’s say your son is named Matthew and your daughter is Julie, and the market value of the house is $100,000. Mathieu and Julie therefore inherit $50,000 each, and this sum will not be taxable if the building has not been rented. If Mathieu wants to buy the house, his $50,000 will be applied towards the purchase of the property. He will therefore have to pay out of pocket or refinance the house for the amount to be paid ($50,000).
The purchaser of the rental house, whether heirs or a third party, will become the owner of a rental property and taxation will apply as such.
ADVICE
We have to calculate if we have enough money set aside for our retirement. Renting a house can bring its share of stress, generate expenses that were not planned and will probably increase the tax rate. It’s a think about it! It is best to consult your tax specialist for a complete analysis of the situation, since each detail can have a significant impact on the answers to your questions.
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