Tax question

[interactive]

Isn't the cost base to the child $0?

It was gifted to the child at market value. So yes - cost base zero but cost base for income tax purposes = fair market value. BUT BUT BUT this is family estate succession issues and goes beyond my realm of expertise.
However if it were you and I or say you won a $600k cottage in the lottery, your cost base would be the fair market value of the cottage. So future sell price less value when it was won would be your gain. LOL side note: the value of cottage in the lottery will be way lower than the advertised prize value.

 

[George The Curious]

Good information, interactive. Last one: What qualifies a principal residence? If parents changes the ownership of the house to their child's name. The child lives in a rental property in the same city, but say keeps the mailing address at parent's address. Can this be the child's primary residence - so when the parents decides to move to a retirement home, the child can sell the house without paying capital gains?

 

[shakenbake]

Don't bother - irrelevant - not the OP question. This information bulletin refers to gifts and their tax deductibility as in giving to a registered charity etc and what you can deduct.

Sorry, you are right. The tax Guide for Individuals states as follows;

Amounts that are not taxed
You do not have to report certain amounts as income,
including the following:
■ any GST/HST credit or CCTB payments, including those
from certain related provincial or territorial programs;
■ child assistance payments and the supplement for
handicapped children paid by the province of Quebec;
■ compensation received from a province or territory if
you were a victim of a criminal act or a motor vehicle
accident;
■ lottery winnings;
■ most gifts and inheritances;
■ amounts paid by Canada or an ally (if the amount is not
taxable in that country) for disability or death due to war
service;
■ most amounts received from a life insurance policy
following someone’s death;
■ most payments of the type commonly referred to as
strike pay you received from your union, even if you
perform picketing duties as a requirement of
membership; and
Note
Income earned on any of the above amounts (such as
interest you earn when you invest lottery winnings) is
taxable.

I guess it can depend on the type of gift and other circumstances if tax is payable.

 

[interactive]

Good information, interactive. Last one: What qualifies a principal residence? If parents changes the ownership of the house to their child's name. The child lives in a rental property in the same city, but say keeps the mailing address at parent's address. Can this be the child's primary residence - so when the parents decides to move to a retirement home, the child can sell the house without paying capital gains?

Still playing with fire eh George
OK your principal residence is what you declare to be your principal residence. It is what you declare.
Parents change/transfer/sell principal residence to child. So parents no longer have a principal residence for income tax capital gains purposes. Nothing to report on tax return. The child now owns it at the market value at the time of the transfer. The child now has a principal residence for income tax purposes. Child lives there or doesn't but claims it to be his/her principal residence for income tax purposes. When the house (childs principal residence) is sold the child would have no taxable gain to report as it was the sale of his/her principal residence.
It would be the same as if the parents passed away and left the house to the child. There would be no capital gains tax on it for either party at any point.
The Income Tax Act is designed to allow a principal residence to remain tax free. So the parents wouldn't likely have to go through the machinations or transfer at this stage. Likely property taxes will sky rocket once the new market value is established.
As always there are likely other factors not known at the moment that would complicate matters.
Given the significant dollar value, professional advice is paramount.
The parents should decide what it is they want to accomplish before tax considerations then factor in the tax consequences then tell the professional their devious crafty plan and the professional will tell them exactly what to do and the plus / minus with every move.

 

[Keebler Elf]

Good information, interactive. Last one: What qualifies a principal residence? If parents changes the ownership of the house to their child's name. The child lives in a rental property in the same city, but say keeps the mailing address at parent's address. Can this be the child's primary residence - so when the parents decides to move to a retirement home, the child can sell the house without paying capital gains?

I think you already know the answer to your question.

Just remember, people a lot smarter than you or I have tried to dupe the CRA and paid the price for it. This has all the hallmarks of someone thinking they can outsmart the tax authorities.

 

[GPIDEAL]

So here is a hypothetical situation:
Parents want to sell cottage, but trying to avoid capital gains tax. So they "gift" it to their child, and child sells it under his name. Assume the child owns no other properties, will the cottage become his primary residence and therefore no capital gains tax?

Since the cottage is usually not a principal residence, gifting it to a child will trigger a taxable capital gain if the property has appreciated since purchase.

I also echo Interactive's post #20.

 

[GPIDEAL]

Isn't the cost base to the child $0?

Transactions for tax purposes are based on FMV with the exception of certain tax-free transfers by default or upon election in a prescribed form, in which case, it is based on the tax cost (example, Adjusted Cost Base or ACB).

Upon death, you are DEEMED to have sold all your assets at FMV, except for tax-free spousal rollovers, unless you elect otherwise (eg. Papa dies so cottage transfers to Mama tax free unless there's an election to use FMV in order to trigger a capital gain that is offset by available net capital losses carried forward - benefit here is that Mama can sell cottage later at a higher cost base, which equates to a smaller taxable capital gain).