As home prices continue to rise, many parents want to help their children achieve the dream of homeownership. Fortunately, there are several tax-efficient strategies available to make this possible while protecting both your finances and your child’s future.
Maximizing Registered Accounts
The First Home Savings Account (FHSA) is an excellent starting point. This government-designed account allows your child to save up to $40,000 on a tax-free basis. What makes it particularly attractive is its hybrid structure: contributions are tax-deductible (like an RRSP), while withdrawals for a first home are tax-free (like a TFSA). If your child has lower income now but expects higher earnings later, they can contribute today and claim the deduction when in a higher tax bracket—maximizing the tax benefit.
The Registered Retirement Savings Plan (RRSP) offers another avenue through the Home Buyers’ Plan (HBP). Your child can withdraw up to $60,000 without immediate tax consequences, providing more early-stage capital than the FHSA. Combined, both programs allow access to $100,000 plus growth for a home purchase.
For those who don’t qualify as first-time buyers, the Tax-Free Savings Account (TFSA) offers flexibility with tax-free growth and penalty-free withdrawals for any purpose.
Beyond Registered Accounts
If registered accounts aren’t sufficient, several other strategies exist:
- Direct Purchase: You purchase the home and remain on title, retaining control while potentially using your principal residence exemption. However, future appreciation may trigger capital gains tax.
- Gifting Cash: You gift funds to your child, who purchases the home outright. This builds equity in their name but exposes the property to potential creditor or marital claims without a domestic contract.
- Lending Funds: A formal loan with a promissory note protects your funds from marital or creditor claims. This approach requires professional legal documentation and clear repayment terms.
- Inter-Vivos Trust: A trust structures ownership to separate legal control from beneficial ownership. While more complex, it can provide relationship breakdown protection and avoid probate fees. However, trust structures typically cannot claim the principal residence exemption.
The Essential Next Step
Each strategy carries distinct tax, legal, and estate planning implications. Your situation is unique, and the right approach depends on your specific circumstances, family dynamics, and long-term goals.
To ensure you implement the most appropriate strategy, contact Jokel Tompkins Private Wealth today. Paul Jokel and the team provide comprehensive guidance tailored to your family’s needs, helping you navigate tax considerations, legal protections, and estate planning seamlessly.
Call 905-546-8702 to discuss your options with an expert advisor.
This information is not intended as nor does it constitute tax or legal advice. Readers should consult their own lawyer, accountant or other professional advisor when planning to implement a strategy. RBC Dominion Securities Inc.* and Royal Bank of Canada are separate corporate entities which are affiliated. *Member- Canadian Investor Protection Fund. RBC Dominion Securities Inc. is a member company of RBC Wealth Management, a business segment of Royal Bank of Canada. ® / TM Trademark(s) of Royal Bank of Canada. Used under licence. © 2023 RBC Dominion Securities Inc. All rights reserved.
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