Seven years ago, Emrick and the mother of his children separated. At the time of the break-up, an important decision was made: Emrick would become the owner of the family home. To do so, he asked his parents to support him financially because he feared that he would be unable to meet his commitment without them. For Emrick's parents, this decision made sense. They were perfectly comfortable with this choice and decided to rent the property to their son.

Today, Emrick pays all the monthly payments and costs associated with the house (mortgage, taxes, heating, insurance, repairs, etc.). As a result, he is ready to officially become the owner of the house again and consequently free his parents from any financial responsibilities towards him.

In recent years, he noticed that the house has increased in value. The selling price of the property is currently around $300,000. Emrick's parents therefore agreed with him to set the resale price at $210,000.

Thanks to one of his friends, a jogging partner who is also one of our clients, Emrick met with one of our brokers to explain in detail the agreement negotiated with his parents. Thrilled by the idea of regaining ownership of the house, he also mentioned to our broker that he wanted to do some work on the property over the next few years, including roofing and insulation.

Our broker proposed him the following plan:

• Setting the sale price of the property at $300,000, which is market value.
• A equity gift of $15,000 (5% of the down payment) from Emrick's parents.
• 95% of the mortgage loan insured by the CMHC, Sagen or Canada Guaranty.

This is how the capital gains tax is calculated:

• Selling price today: 300 000$.
• Purchase price 7 years ago: $200,000.
• *Capital gain: $100,000.
• *Tax on capital gain estimated at $25,000 if we consider the tax rate (50%) and the income of Emrick's parents.
• Therefore, $285,000 (sale price of the house minus the equity gift of $15,000) - $210,000 (sale price set by Emrick's parents) - $25,000 (capital gains tax) = $50,000.

By taking advantage of our judicious advice, Emrick will make $50,000 profit from the sale of the house. This profit can be used for future renovations, expenses related to the purchase of the property and investment in a personal RRSP or for his children's Registered Education Savings Plan (RESP).

This situation could have been problematic if another mortgage professional had insisted on keeping the resale price at $210,000, as Emrick's parents initially wanted.

The moral of the story? Dealing with an AMF-certified mortgage broker gives you access to a specialist who is committed to finding the best solutions... Those that are perfectly adapted to your needs.


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