Selling Real Estate to Family for One Dollar: Tax Risks

I’m sorry you’ve been carrying this worry, Susan. Issues like these highlight how important it is to keep clear records and to understand the tax and estate consequences when real estate changes hands. Missing information or unreported transactions can create stress for heirs and executors down the road.

Fixing a past tax mistake: the Voluntary Disclosures Program

If you or an estate discovers an omission or an error on past tax filings, there is a formal route to come forward to the Canada Revenue Agency (CRA) called the Voluntary Disclosures Program (VDP). The VDP lets taxpayers correct past mistakes and potentially obtain relief from penalties and some interest, while avoiding criminal prosecution for the specific disclosures made. Any tax owing must still be paid in full.

“The Voluntary Disclosures Program (VDP) is an opportunity for taxpayers to inform the Canada Revenue Agency (CRA) about and correct errors or omissions in their tax obligations. If relief is provided by the CRA under the VDP, a taxpayer may receive some penalty and interest relief, and will not be referred for criminal prosecution. Any taxes owing will still have to be paid by the taxpayer in full.”

Changes to the VDP that took effect on October 1, 2025 simplified the application form (Form RC199, Voluntary Disclosures Program (VDP) Application) and relaxed some of the previous restrictions. The CRA now issues educational letters to taxpayers about unreported income or ineligible expenses without automatically disqualifying them from applying to the VDP; previously the program required disclosures to be completely unprompted. That said, taxpayers who are currently under audit or who have engaged in serious non-compliance may be restricted from applying.

The CRA generally offers two levels of relief under the VDP:

• General relief for unprompted disclosures, typically providing 75% interest relief and full relief from penalties.
• Partial relief for disclosures that were prompted, typically providing 25% interest relief and up to full relief from penalties.

Principal residence exemption and cottages

The reassuring news for your situation is that the cottage your mother transferred to you was likely eligible for the principal residence exemption (PRE), which often eliminates capital gains tax on the sale, transfer, or deemed disposition of a property that qualifies as a principal residence.

The PRE can apply to any property you ordinarily occupy as your principal residence, without a minimum number of days. It doesn’t depend on your mailing address or where you spend other parts of the year—what matters is that the property was ordinarily inhabited. Because this cottage was the only real estate your parents ever owned, it likely qualified as their principal residence and so probably did not generate a taxable capital gain when ownership changed.

Note that since the 2016 tax year, taxpayers must report the disposition of a principal residence on their tax return for the year it was sold or otherwise disposed of in order to claim the exemption. That reporting requirement did not exist in the same way before 2016.

Selling or transferring property below fair market value

Transferring real estate to a family member for less than fair market value is not a reliable way to avoid tax. When property moves between non-arm’s-length parties (for example, from a parent to a child), the transfer is generally treated for tax purposes as occurring at fair market value. That means the seller or transferor may face tax on any deemed capital gain based on fair market value, regardless of the nominal sale price.

For the recipient, receiving property at below-market cost can create issues later. If the recipient’s acquisition cost is recorded below fair market value, they may face tax consequences on the difference when they sell the property later—effectively creating double taxation or unnecessary tax exposure.

However, CRA guidance indicates that in some cases a nominal $1 sale between related parties can be treated as a gift if the documentation shows that the nominal amount was simply included to make the agreement legally binding. CRA has noted that when property is acquired by way of gift, bequest or inheritance, the recipient is deemed to acquire the property at fair market value for tax purposes. That interpretation may apply to your situation and could mean the transfer to you was treated at fair market value even though you paid $1.

“In certain circumstances, the Canada Revenue Agency may be willing to accept that the transfer of property between non-arm’s length parties for the nominal amount of $1 could be considered a gift. For example, if the agreement governing the transfer provides for consideration of $1 merely to ensure that the agreement is legally binding, the CRA may consider the transfer to be a gift.”

“Paragraph 69(1)(c) of the Act will apply where a taxpayer (the recipient) has acquired property by way of ‘gift, bequest or inheritance.’ If paragraph 69(1)(c) applies, the recipient is deemed to acquire the property at FMV [fair market value].”

Given those points, it’s possible you have little or no unpaid tax exposure related to that 2009 transfer. If you remain uncertain, you can ask the CRA for a generic technical interpretation or request a formal income tax ruling specific to your circumstances. Seeking professional advice from a tax specialist or an estate lawyer would also help clarify your position and reduce future risk.

The takeaway: Before transferring or selling property within a family, get professional tax and legal advice. Proper planning and documentation prevent surprises for heirs and executors and avoid costly penalties or legal disputes later.

Read more from Ask a Planner:

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• What to do when you get laid off
• Why late-career savers need to be careful with RRSPs
• Taxes halved their inheritance. Could anything be done?