I sold half my principal residence to a family member, and now we all live in the house together. The property continues to be my principal residence. Do I have to pay any capital gains taxes on the sale?
—Ellen
Selling part of your home to a family member: tax implications
If the property remains your principal residence, the sale of part of the home to a family member generally does not trigger capital gains tax under the Canada Revenue Agency’s principal residence exemption. To qualify for the exemption, you must have ordinarily inhabited the home for the years you owned it and the property must not have been used principally to earn income.
Based on the situation you describe, Ellen, you would typically not owe capital gains tax on the partial sale because the property continues to meet the conditions of a principal residence. That said, specific circumstances can change a tax outcome, so it’s wise to verify your exact situation with an accountant or tax professional, especially if any portion of the property has been used to generate income or if ownership dates and records are unclear.
First-Time Home Buyers’ Tax Credit for the family buyer
The family member who bought half of the home may qualify for the First-Time Home Buyers’ Tax Credit if they meet the CRA’s first-time buyer criteria. Currently the credit is calculated on a $5,000 amount, which yields a non‑refundable credit that can reduce federal taxes by up to $750. The federal budget has proposed increasing the amount used to calculate this credit to $10,000, which would raise the maximum tax benefit to up to $1,500 for eligible buyers; that proposal, if enacted, has been suggested to apply retroactively to qualifying purchases back to January 1, 2022. An accountant or tax advisor can confirm eligibility and explain how the credit may apply in your case.
Why a written co-ownership agreement matters
Putting tax questions aside, sharing ownership of a home with a family member changes the legal and practical dynamics of living together. A written co-ownership agreement protects everyone involved by setting out expectations and procedures before disagreements arise. A clear agreement reduces uncertainty, prevents misunderstanding, and offers a framework to resolve disputes.
A comprehensive co-ownership agreement typically addresses:
- Ownership structure and decision-making processes
- How the property will be used by each owner
- Financial responsibilities and insurance arrangements
- Maintenance, repairs, and routine upkeep
- Actions to be taken in the event of negligence or misconduct by a co-owner
- Dispute resolution procedures
- Entry and exit provisions, including how a co-owner can sell or transfer their share
Even if some topics seem unlikely to be needed, spelling them out in advance protects all parties and helps keep family relationships intact. When you draft a co-ownership agreement, it’s advisable for each co-owner to have independent legal advice so every party’s interests are represented fairly.
Choosing a co-ownership structure
How you hold title to the property will affect estate planning, tax consequences, and what happens if a co-owner dies. The two most common structures are joint tenancy and tenants-in-common.
- Joint tenancy: Often used by married couples, joint tenancy gives each owner an equal interest in the whole property. If one owner dies, their interest passes automatically to the surviving owner(s) by right of survivorship rather than through the deceased owner’s estate.
- Tenants-in-common: This arrangement allows owners to hold specific, documented shares of the property. Each owner’s share can be bequeathed through their will and becomes part of their estate on death. Tenants-in-common provides greater flexibility for unequal ownership stakes and estate planning.
Because the choice affects succession, taxes, and legal rights, consult a lawyer or estate planner to determine which structure best suits your goals and your family’s circumstances.
Practical next steps and recommendations
To summarize: if the home remains your principal residence and you have lived in it for the relevant period, selling half to a family member usually will not create a capital gains tax liability for you. The buyer may qualify for a first-time home buyers’ credit depending on their situation. Beyond taxes, put a formal co-ownership agreement in place and decide on the title structure—joint tenancy or tenants-in-common—and seek independent legal and tax advice to ensure everything is documented correctly.
With thoughtful planning, co-owning a home with a family member can work well. Clear agreements and professional guidance will protect relationships and finances, helping everyone enjoy the benefits of shared ownership. Best of luck, Ellen.
Meghan Chomut, CFP, is a financial planner with Porte Rouge.
Qualified Advice is written by members of the Financial Planning Association of Canada (FPAC), a MoneySense content partner. FPAC works with governments, regulators, financial planners, academia and the public to set standards that help financial planning evolve into a trusted, knowledge-based profession.
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