Over the next several weeks, with home prices at such a high level, I will be outlining some possible options for parents to assist their children in stepping into home ownership. Here is the third of five columns.
In the throes of an unparalleled housing crisis, parents have indeed become creative in how they help their children attain the Canadian dream of homeownership. One of those ways is by gifting them stocks, which can be done through simple transfers, or by opening up custodial accounts in the child’s name years in advance.
This option is proving popular, especially among parents whose stock-trading acumen has helped them build their own tidy nest eggs. A few neat stock trades could indeed result in pay outs that cover the cost of a down payment, and then some.
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Moreover, stockholders benefit from long-term compounding returns, which goes a very long way when the time comes to cash out because the stock has attained a certain value.
The other benefit of gifting a stock is that it averts triggering capital gains taxes as astronomical as 15 per cent on lofty gains. If the child assuming the stock is in a lower tax bracket, their tax burden will be lower, or — in some cases — non-existent.
The stock’s benefactor could then lower their own tax burden by gifting their child a stock.
Gifting stocks can be considered part of early inheritances, much like parents gifting money for all, or parts, of their child’s down payment on a new home. However, it’s a potentially more cost-effective way because, in many cases, the only upfront cost is the amount used for the initial investment, but your child will reap all of the appreciation.
In order to optimize this gifting strategy, research which stocks appreciate the fastest and which ones are the least volatile.
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According to a 2021 CIBC analysis, financial gifts received by first-time homebuyers rose from 20 per cent in 2015 to 28 per cent in 2021. The average gift amount in 2015 was in the neighbourhood of $52,000, and it surged to around $82,000 six years later.
In addition to gifting stocks, some parents have taken to gifting their child mutual funds as a means of funding the down payment on a new home, while others cash in their tax-free savings account (TFSA).
In fact, the federal government announced the First Home Savings Account this past summer, which, in tandem with gifting stocks or mutual funds, can be used to fund down payments. The First Home Savings Account allows first-time homebuyers to contribute a maximum of $8,000 into the account per annum, with a $40,000 lifetime limit.
Contributions into the First Home Savings Account are tax deductible on annual income tax returns, like Registered Retirement Savings Plans, and as with TFSAs, any money that’s withdrawn to buy a first home is not subject to taxes.
Considering a full down payment in the GTA is anywhere from $100,000 to $200,000, this account could comprise part of a strategy that pools funds, stocks and other financial gifts.
Mirella Sarrapochiello is Vice President, Sales and Marketing, for Dunpar Homes, a company that’s been building homes and communities across the GTA for more than 40 years specializing in luxury townhomes. Contact her with your questions at: info@dunpar.ca. To see all five columns visit dunparhomes.com.
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