As it is Valentine’s Day, our discussion today will consider, naturally, love and affection.
Real property can be gifted to loved ones. If there is no consideration of monetary value, then there will be no Land Transfer Tax payable on the transaction. In the Land Transfer Tax Affidavit, which must be filed when any transfer is registered in Ontario, the transfer is said to be for “natural love and affection”.
Although not specifically exempt from taxes, a transfer for “natural love and affection” is considered to be a transfer for nil value, and therefore, no Land Transfer Tax is payable.
“Love”, as most poets know, is hard to define. There is no definition in the tax legislation. Further, it is not clear what “unnatural” love or affection is.
In certain cases, gifts to non-arms’ length parties may also not attract Land Transfer Tax. For example, a gift to a charity may not be subject to Land Transfer Tax.
If the gift includes the assumption of a mortgage or other liabilities by the receiver, then the value of the mortgage or liability assumed by the receiver is of value to the donor, and must, in most cases, be included in the Land Transfer Tax Affidavit. Land Transfer Tax will be payable on the value of the mortgage or liability assumed. I say “in most cases” because there is an exemption where the transfer is between spouses or former spouses: see R.R.O. 1990, Regulation 696.
Further, if the receiver is not a spouse and the land was subject to a mortgage that was paid off by the receiver, Land Transfer Tax will be payable on the value of the mortgage paid off.
When gifting real property, keep in mind that while Land Transfer Tax may not be payable, this does not mean that income taxes are not payable. In many cases, the gift will trigger a deemed capital gain on the part of the donor.
For more information, see the Ontario Ministry of Finance bulletin, here, and the Government of Ontario publication, “A Guide for Real Estate Practitioners: Land Transfer Tax and the Registration of Conveyances of Land in Ontario”, here.
Thanks for reading.