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  • Transferring real estate to family or friends

    If you give a property to family or friends, or sell it to them for less than market value, and you're entitled to the main residence exemption, it will still apply.

    However, if you're not entitled to the main residence exemption for the property – or you're entitled to only a partial exemption – CGT will apply. Even if you receive nothing for your property, you're taken to have received its market value at the time you disposed of it.

    This means you would have to pay capital gains tax on any capital gain for the part of the property that was not exempt.

    You may also be taken to have received the market value if:

    • what you actually received (your capital proceeds) was more or less than the market value of the property, and
    • you and the new owner were not dealing with each other at arm's length.

    You should obtain a valuation from a professional valuer, or work out the market value yourself using reasonably objective and supportable data. This can include the price paid for very similar property that was sold at the same time in the same location.

    You are said to be dealing at arm’s length with someone if each party acts independently and neither party exercises influence or control over the other in connection with the transaction. The law looks at not only the relationship between the parties, but also the quality of the bargaining between them.

    In these cases, the market value of the property on the day of the transfer replaces what you actually received for it.

    Example: Selling a property for less than market value

    Antoine owned a rental property. The lease on the rental property was due for renewal and he owed only $120,000 on the mortgage. Antoine offered to sell the rental property to his son for the balance owing on the mortgage. His son accepted the offer and purchased the property for $120,000.

    Antoine obtained a market valuation from a professional valuer. It showed the value of the property at the time of transfer was $250,000.

    Despite Antoine selling the property for $120,000, the $250,000 market value is his capital proceeds when calculating his capital gain or loss.

    End of example

    See also:

    Special rules

    If you transfer real estate to:

    • your former spouse on the breakdown of your marriage or relationship, the rules above may not apply – see Relationship breakdown
    • the trustee of a special disability trust for no consideration, any capital gain or loss is disregarded.
    Last modified: 29 Jun 2018QC 52197