With the rising cost of real estate, the dream of one day owning a house is becoming increasingly unattainable for those aged 35 and under. As a result, many parents want to help their children become homeowners sooner and in ways other than through a distant inheritance. After all, it’s probably more useful to their descendants in the short term. Here are a few possibilities :
Take advantage of the TFSA
With a Tax-Free Savings Account for the purchases of the first home (TFSA), a homebuyer can save up to $8,000/year and $40,000 lifetime, with tax deductions on deposits (like an RRSP) and tax-free withdrawals (like a TFSA).
A parent can offer funds to their child to help them contribute. However, to avoid tax consequences, the money used to buy the home must come directly from the child’s TFSA.
By starting to contribute early (from age 18), young people immediately benefit from tax deductions and tax-sheltered growth.
Transfer or sell property to your child
In this scenario, always consider the tax impact, as it will vary depending on whether the residence is a duplex, has just been purchased, etc. For example, if the property is a cottage or second home, it will be subject to taxable capital gains, even without a monetary transaction.
Co-borrow with your child
Co-borrowing or co-signing a mortgage will improve your child’s eligibility for financing. However, if they have difficulty making payments, this will add dept to your credit file. In addition, you will be liable in the event of default.
Buy a multiplex together
When you purchase a duplex, triplex, or quadruplex, the rental income will help cover the costs. In addition, your child will live in one of the units and learn about property management. It is certainly a concrete form of assistance and support towards financial independence!
Make a cash gift
Such a gift could serve as a down payment. However, document the transaction with a notarized deed. On the family side, make sure you treat the other children fairly in the long term. A gift can be a double-edged sword, however. In this regard, legal and family issues must be considered, as the primary residence automatically becomes part of the family patrimony. If your child is single, there is no impact, but there may be one eventually when they start a family.
With so many options available, seek help in determining the most appropriate course of action. Contact the specialists at Lussier for more information.
