Rios Revi asks:
(updated on Tuesday, May 17th 2022)
I'm about to inherit 1 residential (bought 5+ yrs ago, may be owned under their names) & 2 commercial properties (bought 5+ yrs ago & in 2021, under their LTC) from my retired parents.
I own a residential property (recently bought new build) and work.
I could sell their residential, buy another, then rent out my residential (or sell it).
I'd like guidance on how best to structure this for title transfers, bright-line test, & tax please. Eg. set up my own LTC and transfer everything to it?
Our Experts Answer:
When it comes to how you are best to structure your ownership of these properties, there are a number of variables that need to be taken into account which go beyond the facts that you have been able to provide.
As a consequence, we cannot go too deeply into what might be the appropriate structure for you without knowing more about you and your circumstances.
What we can do, though, is highlight some of the key points you should be aware of when it comes to inheriting and restructuring the ownership of property.
a) The bright-line rule is potentially relevant in the context of the residential properties, but not in the context of the commercial properties.
b) You also have the new interest limitation rules to contend with in respect of any residential rental properties, but not in respect of the commercial properties.
c) There are no bright-line issues when a property passes from a deceased person to the executor of their estate and then from the executor of the estate to the beneficiaries under the will.
d) This means that if you take ownership of a residential property from an estate pursuant to a bequest in the will, then you can sell that property, outright or to a related entity, and there would not be any bright-line gain for you.
e) However, you mentioned that your parents are retired, rather than deceased, suggesting that it may be a form of early inheritance occurring here, which does not qualify for this concession.
f) Further, even if you do inherit property and qualify for exemption from the bright-line rule on subsequent sale, if you restructure to a related entity, then you may reset the bright-line period in the new entity and you may lose the ability to claim any interest deductions if there is a mortgage that you take over in relation to the property.
g) Having said that, (and this illustrates the complexity involved here), there are now new “rollover relief” rules that allow the ownership of residential property to be restructured without resetting bright-line or losing the ability to claim the same level of interest deductions in certain prescribed situations.
h) As far as the commercial properties are concerned, if they are owned by an LTC then you can take ownership of the LTC shares, but whether or not that is the best structure for those properties depends on number of factors, including your plans for them in the future, the current financial performance of the properties, and your personal income tax circumstances.
In closing, there are a number of complexities here and this is a great example of how specific advice should be sought when looking to implement an asset ownership structure so that it is tailored to meet your particular circumstances.
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