Seven years ago, Emrick and the mother of his children separated. During the breakup, an important decision was made: Emrick would become the owner of the family home. To do this, he had to seek financial help from his parents, fearing he would not be able to meet his commitments on his own. His parents found this decision logical and agreed to rent the property to their son.

Today, Emrick covers all the monthly payments and expenses related to the house (mortgage, taxes, heating, insurance, repairs, etc.). He is therefore ready to officially become the owner again and to relieve his parents of all financial responsibilities.

Over the years, Emrick noticed that the value of the house had significantly increased, currently reaching around $400,000. His parents agreed with him to set the resale price at $310,000.

Thanks to a friend – a jogging partner who was one of our clients – Emrick met one of our brokers to explain in detail the agreement negotiated with his parents. Eager to become the owner again, he also mentioned that he wanted to carry out some work on the property in the coming years, including the roof and insulation.

Here is the plan proposed by our broker:

• Setting the sale price of the property at $400,000, which is the market value of the house.
• Equity gift of $20,000 (5% of the down payment) assumed by Emrick's parents.
• Financing secured at 95% by CMHC, Sagen, or Canada Guaranty.

Thus, with the $380,000 generated from the financing of the property, Emrick will be able to repay the $310,000 owed to his parents. However, he will also have to pay the capital gains tax that his parents will owe.

Calculation of capital gains tax:

• Current sale price: $400,000
• Price paid by the parents seven years ago: $300,000
• Capital gain: $100,000

*To estimate the capital gains tax, 50% of the gain is included in taxable income. Thus, the taxable amount would be $50,000. Considering the applicable tax rate (50%) and the income of Emrick's parents, the estimated capital gains tax would be $25,000.

Thanks to our wise advice, Emrick will generate an amount of **$45,000 from the repurchase of his house. This amount can be used for future renovations, expenses related to the purchase of the property, or for an investment in a personal RRSP or a Registered Education Savings Plan (RESP) for his children.

This situation could have been much less advantageous if another mortgage professional had insisted on keeping the resale price at $310,000, as Emrick's parents initially wanted.

Moral of the story? Doing business with a mortgage broker certified by the Autorité des marchés financiers allows you to access a specialist committed to finding the best solutions, perfectly tailored to your needs.

*It is important to contact your accountant or tax advisor to validate the amount of the capital gain, as the parents in this example could qualify for the principal residence exemption.

** $380,000 (sale price of the house minus the $20,000 equity gift) – $310,000 (real sale price set by Emrick's parents) – $25,000 (capital gains tax) = $45,000.