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Do I need to pay tax if I borrow money from my parents? - Click HERE for Original Thread

davechoi1973
I borrowed money from my parents to buy a place.

is that count as income?

and do i have to pay tax?
Tik-Tok
Not unless they record it in their taxes as a business loan.
PeterGTiR
For tax reasons:

I think you're required to pay interest on the loan, and your parents are required to report that interest as income. If it is interest to earn investment income, it is tax deductible, but if it's your personal residence, you can't deduct it.

It doesn't count as income if it is a loan.
Jason04S1
The bank should have asked you where you got that income from to purchase the house.
But it is not a re-occuring income like paying rent or something so taxes can't be charged.
em2ab
A one-time gift from parents to son is allowed tax free. My parents checked into it when giving a $12000 car to my brother and he didn't have to pay taxes on it. It is up to a certain dollar limit though.
shakalaka
This won't count as Income tax, but a capital gains tax instead. You may be charged a Capital gains tax, unless your parents declare the transfered amount as a gift, as a certain amount in a given year is exempted for the purposes of capital gains tax, if it is transfered as a means of gift. I would look into the capital gains tax act.
davechoi1973
I'm going to sell my condo and move into a bigger place.

it's not for investment. just for my personal residence.
clem24
WTF are you guys talking about??? This is a personal transaction. There are NO TAX CONSEQUENCES!!! Your parents are lending you "after tax" dollars. That is, this is private money that has already been taxed (like they earned from employment). Again, this is a private transaction, NO TAXES!!!!!

There are different rules if this money was lent to you from a company though.

But again, if this came from their own personal bank account, there are no taxes (that's the third time I've said it). They can give you $1,000,000 if they wanted.
Xtrema
Gift money - no tax

Inherited money - treated as capital gain.

The only limitation is the gift giver is in USA, then they are only allow to give away $12K tax free.
Antonito
The trick would be to have them declare it a gift, and then pay them back in cold hard cash, which they never deposit into their accounts (it'd be their shopping money for the next 20 years I guess). Depending on how long the repayment term your parents wants is, you'd have to space out a bunch of cash withdrawls so that you could explain them as really boozy drinking binges or lots of shopping if you were to ever get audited. It's a lot easier to explain outrageous spending rather than your parents trying to explain why they keep getting mystery money.

This of course is only a theory, as no one here would ever advocate trying to screw the government....
Majestic12
Originally posted by Xtrema
Gift money - no tax

Inherited money - treated as capital gain.

The only limitation is the gift giver is in USA, then they are only allow to give away $12K tax free.



Inheritances are not considered taxable income. However, I believe, if the inheritance itself has gained in value, that increase is taxable as the capital gain. I guess that doesn't really apply to cash.

Antonito
Originally posted by Majestic12


Inheritances are not considered taxable income. However, I believe, if the inheritance itself has gained in value, that increase is taxable as the capital gain. I guess that doesn't really apply to cash.



So for example if a parent buys a house in 1950 for $20,000 and when it is inherited by the kid it is worth $350,000, the capital gains tax is applied to the $330,000?

icecreamvan
This isn't a case of inheritance though. Parents are still alive.

IIRC, the capital gains on the re-sale of property would be attributed to the parents on a non-arms length interest free loan. This prevents unfair tax treatment for people with kids.

If you pay a market interest rate to your parents, they have to declare income on the interest, and the kids can write off the interest if it's a commercial property. But it would be wiser to just use the principle residence to save on capital gains.

I haven't read up on taxes in a couple of years, so I could be wrong.
Majestic12
Originally posted by Antonito


So for example if a parent buys a house in 1950 for $20,000 and when it is inherited by the kid it is worth $350,000, the capital gains tax is applied to the $330,000?



That's right.



And yeah, this won't be considered an inheritance at all... but
I just finished my tax exams last week, so I'm itching to use my knowledge for something before it fades away into oblivion like everything else I learned in school.
:D

broken_legs
I thought that when you die everything you own is deemed sold at fair market prices thus if there was an increase in value of anything a capital gains tax must be paid to inherit the items. However, if there was a loss you can use that to cancel out the gains.


Thats why you should keep everything in a family trust... i think ???
Majestic12
Wait yeah that's right.
So when someone dies, they are considered to dispose of their assets at full market value.

Then you pay the CG tax on the asset at whatever the assessed full market value is.

I'm confusing myself.

Ahh..
Majestic12
I could be wrong on a couple of points... safer bet is not to ask the lawyer, ask an accountant!
shakalaka
Originally posted by davechoi1973
I'm going to sell my condo and move into a bigger place.

it's not for investment. just for my personal residence.



If it is your private residence or the sole dwelling that you are selling, any money obtained from it is tax exempt.

shakalaka
Whenever someone dies and leaves their assets to someone, that would be charged under the Inheritance Tax and not Capital Gains Tax.
Xtrema
Originally posted by shakalaka
Whenever someone dies and leaves their assets to someone, that would be charged under the Inheritance Tax and not Capital Gains Tax.



Not that I trust Wiki completely, but I thought there's no inheritance tax in Canada.

http://en.wikipedia.org/wiki/Taxation_in_Canada




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