Gifting Property to Children
Gift, sale, joint title or will: how transferring property to children is taxed, the below-market trap, bare trusts and land transfer tax.
The short version
- Giving property to a child is a sale for tax purposes: you're treated as selling it at fair market value, and you owe tax on any gain, even though no money changed hands.
- If it's your principal residence, the gain is usually tax-free. A cottage, rental or land is usually taxable; half the gain is included in income.
- Selling to a child for less than market value is the worst of both: you're taxed as if you got full value, but your child's cost is only what they paid. The same gain can be taxed twice.
- Adding a child to title can be a sale of part of the property, or just paperwork (a bare trust), depending on who really owns it. Write down what you intend.
- Bare trusts don't file T3 returns for 2025; mandatory filing is proposed to start with the 2026 tax year, with exemptions for many family home arrangements.
Gifting Property to Children
Parents usually move property to their kids for the best reasons: to help with a first home, to keep the cottage in the family, or to avoid probate. The Income Tax Act doesn't care about reasons. It looks at who owns what, and at what price, and it has one rule designed specifically to catch generous parents who undercharge. Here's how the three common ways to do it are taxed, and which one usually works.
Three Ways to Transfer, and the Tax
| Method | Your tax | Your child's cost | Watch out for |
|---|---|---|---|
| Gift it outright | Capital gain as if sold at market value | Market value | Tax with no cash to pay it |
| Sell it at market value | Capital gain on the price | The price | Can be paid with a promissory note; a reserve can spread the gain over up to 5 years |
| Sell it below market value | Capital gain as if sold at market value | Only what they paid | Double tax on the same gain later |
| Add the child to title | Gain on the share transferred, if they get real ownership | Market value of that share | Bare trust and probate questions |
| Leave it in your will | Capital gain on your final return | Market value at death | Probate fees; see probate vs income tax |
Planning to move a property to your kids?
Tell the assistant the property, what you paid, its value now, whether it was ever your home, and how you want to transfer it. It compares gift, sale, joint title and will, after tax.
Example: The Below-Market Trap
A parent bought a cottage for $150,000. It's now worth $550,000. They sell it to their daughter for $200,000 to help her out.
- Parent: taxed as if sold for $550,000. Capital gain $400,000, half taxable.
- Daughter: her cost is $200,000, not $550,000.
- If she later sells for $550,000, she has a $350,000 gain, most of which the parent was already taxed on.
- A gift for $0 would have been better: same tax for the parent, but her cost would be $550,000.
Cottage-specific rules, including using the principal residence exemption on it, are on cottage capital gains; the tax at your income is in the capital gains calculator.
Adding a Child to Title
- If the child only holds title for you (you keep paying, using and benefiting from it), it's usually a bare trust: no sale for tax, and the property stays yours. Probate and creditor protection may not work the way you hoped.
- If the child gets a real share, that share is a sale at market value now.
- Write a short agreement saying which it is. With adult children, courts start from the presumption that a gratuitous transfer is held in trust for the parent, unless there's evidence of a gift.
- Bare trust reporting: no T3 filing for 2023 to 2025; filing is proposed from the 2026 tax year with exemptions, including some parent-and-child principal residence arrangements. See the T3.
Using the principal residence exemption on the transfer?
The home and cottage SmartFile works out which property should use the exemption for which years, and fills in Form T2091(IND) for the transfer year.
Other Points
- Land transfer tax may apply when there's payment or an assumed mortgage; a pure gift is often exempt in Ontario, but check with the lawyer handling the transfer.
- Minor children: income from property given to a minor is taxed back to you; gains generally aren't.
- Helping with a down payment instead? See buying a home with family and the Home Buyers' Plan.
- After your death, see inherited property.
Property to Children Questions
Do I pay tax if I give my house to my child?
You are treated as selling it at fair market value. If it was your principal residence for all the years you owned it, the gain is usually tax-free. Other property, such as a cottage or rental, usually creates a taxable capital gain.
Can I sell my house to my child for $1?
You can, but for tax you are treated as selling at fair market value, while your child’s cost is only $1. That can mean the same gain is taxed twice. A gift is usually better than a below-market sale.
Is adding my child to my house title a taxable event?
It depends on whether your child gets real ownership. If they only hold title for you, it is usually a bare trust with no tax effect. If they get a real share, that share is treated as sold at market value.
Do bare trusts have to file T3 returns?
Not for the 2023, 2024 or 2025 tax years. Filing is proposed to start with tax years ending December 31, 2026, with exemptions for some family home arrangements; the rules were not yet law when we checked.
Can I spread the capital gain if my child pays me over time?
Yes. If you sell at fair market value and receive payments over several years, a capital gains reserve can spread the gain over up to five years.
Sources: CRA, Guide T4037, Capital Gains; Income Tax Folio S1-F3-C2, Principal Residence. Checked October 2026. Bare trust reporting rules were proposed in Bill C-15 and not yet enacted when checked; CRA's administrative relief covers 2025. Land transfer tax and probate are provincial and are summarized only. Family transfers often involve legal as well as tax questions.
Last reviewed October 5, 2026 against CRA and Government of Canada sources. How we check our facts.