Ontario’s Gift Law Could Cost You Thousands

Do you know the difference between legal and beneficial ownership? This post will summarize the difference.

In Canada, there is a difference between legal and beneficial ownership. This is a distinction that can cost you. And it is real. This post is not legal advice which you need to determine ownership. Legal advice is always based on personal circumstances.

Whenever there is a gratuitous transfer (without payment or consideration), how do you prove there was a gift. If the gift comes from a deceased parent, they cannot come to testify in court?

The law does not presume gifts were made or intended. Canada’s Supreme Court in a 2007 decision in Pecore sets standards. The court declared that where a gratuitous transfer of property is made, then the person receiving the property is presumed to hold it for the beneficial (real) owner.

The person claiming a gift must satisfy a judge that there was a gift. How much will that cost in court? Thousands, I would say. If this was a transfer between a parent and a child, problems began to double when the parent is no longer able to testify that a gift was intended.

Here’s an example. John helps his father, Oleh. who stopped driving. Oleh tells John he will leave his house to him and signs a deed giving John the house. When John dies, his will reads, “divide everything 3 ways between my 3 children”. But Oleh gave his house to John, and there’s not much left to divide. Unfortunately. John’s siblings hire a lawyer to sue Oleh’s estate saying that their brother, John, only has legal and not beneficial title to the property. The siblings rely on the presumption that no gift was intended. Therefore, John holds the house on a resulting trust based on the principles in Pecore.

A resulting trust means that the person who receives the property (John) may be the legal owner but holds the property in trust for the person who transferred the property (Oleh) to him. The person who gifted the property is the beneficial owner unless there is proof of an intention to gift.

Here is another example from an estate.

Ontario imposes a provincial Estate Administration Tax on assets when a person passes. The beneficial owner is liable for provincial estate tax of roughly 1.5% (on worldwide assets) except for mortgages and foreign real estate. Exemptions for this provincial estate tax are given to jointly owned assets not controlled by wills.

If there is a gratuitous transfer, then beneficial ownership means that they are controlled by a will and not by the person with legal ownership. The beneficial owners are liable for provincial estate tax if they own the property and retain beneficial ownership.

John may be forced into court to prove a gift was intended when Oleh made the gratuitous transfer to him. Of course, this intention was clear for John when the gift was made. However, if there is no confirmation that a gift was intended, the decision may be left to a judge. It may be costly to prove intention after-the-fact when Oleh is no longer alive to testify in court.

That is the danger when you receive a gratuitous transfer. This could be a joint bank account or other jointly owned property; you may be required now to prove a gift was intended years after the transfer of property. Court decisions explain what evidence may be required to establish an intention make a gift. A deed of gift can be prepared and signed with independent legal advice which may help prove no undue influence was used.

Are you a legal or beneficial owner of the property? I can help.

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