Tax advice – Transfer of a main residence during one's lifetime

(Canada / Quebec)

In light of Canadian and Quebec tax rules, as well as the civil implications surrounding incapacity, transferring a principal residence during one's lifetime can be a fiscally advantageous and legally prudent strategy.

1. Tax treatment of the transfer of a main residence

Under the Income Tax Act, the disposition of a principal residence is generally exempt from capital gains tax, where the property has been designated as a principal residence for all years of ownership.

Thus, a transfer of ownership carried out during one's lifetime does not usually generate any taxation, either for the donor or for the beneficiary, when the conditions of the main residence are met.

2. Tax risks if the property is retained while the person lives in residence

When the owner permanently leaves the house for a residence or care facility, the property may cease to be considered a primary residence for subsequent years.

This situation can lead to:

• a taxable portion of the capital gain at the time of sale or death;

• an unfavorable tax reassessment;

• a more complex tax treatment during inheritance proceedings.

3. Impacts in case of incapacity and intervention of the Public Guardianship

If the person becomes incapacitated and no protection mandate has been approved, the Public Curatorship may be called upon to administer the estate.

In this context:

• The non-owning occupant may be required to pay market-rate rent;

• The guardianship can force the sale of the residence to finance care;

• No consideration is given to relatives in the absence of authorized legal documents.

This creates a significant risk of loss of control and administrative and family complications.

4. Advantages of immediate transfer

By transferring one's primary residence during one's lifetime, the following tax and legal advantages apply:

• Elimination of the risk of future capital gains tax

• Stability for the occupants (no rent imposed, no possibility of eviction)

• Prevention of coercive interventions by the Public Guardianship

• Simplification of inheritance and reduction of delays

• Legal certainty regarding ownership and control of the property

5. Conclusion

From a tax and estate planning perspective, the immediate transfer of a primary residence is generally the most prudent and effective solution when the owner no longer occupies it and risks becoming incapacitated. This approach secures assets, avoids undue taxation, and ensures the protection of loved ones.