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(September 3, 2024)

In almost all cases, when you qualify for a mortgage, you automatically become a land title holder. However, there are ways to significantly adjust your ownership share to mitigate unintended financial outcomes that may arise upon the property’s purchase and/or sale or during the property’s ongoing ownership. By strategically structuring your ownership, you can minimize potential issues such as capital gains tax or complications arising from changes in ownership due to events like the death of a title holder. This flexibility allows you to tailor your degree of ownership to better manage financial implications and other potential consequences. In other words, when you qualify for a mortgage, you become a ‘covenantor’ and are simultaneously listed on the land title of the property you are purchasing. These two roles establish your accountability with the credit bureau and your degree of ownership with the land registry. While these two entities are separate, they are simultaneously established from the onset of your real estate transaction and are independently critical to the completion of the purchase. But here’s where things get more interesting and opportunistic. Home buyers are increasingly becoming impacted by government policies specifically linked to home ownership, but not mortgage covenant holders (i.e. various new-to-Canada property ownership policies, capital gains tax on the sale of investment properties, etc). So if two applicants qualify for a mortgage together, they will both share the full liability, equally (the mortgage). Both covenantors will likely have the mortgage listed on their credit reports, and both will be negatively affected if payments are missed or, worse yet, if the mortgage goes into default, potentially resulting in foreclosure. A similar relationship exists among title holders, but the ownership terms and structure of the land title partnership are far more flexible and open to specificity. It is this flexibility that allows title holders to customize their degree of ownership to align with their level of liability and financial entitlement during the purchase, throughout ownership, and upon the property’s disposition through sale or the death of a title holder. There are two ways to register your ownership on the land title of the property; Joint Tenancy, and Tenancy-in-Common. Under Joint Tenancy ownership, all title holders own the property equally and in the event one of the title holders pass away, the surviving title holder will continue to own the entire property (due to right of survivorship). Under Tenancy-in-Common ownership, each title holder has a pre-determined and specific share in the property. The share structure among registered title holders must add up to 100%, and the allocation of shares to each title holder does not have to be equal. In the event one of the title holders pass away, the deceased’s share becomes part of their estate and carries out as per estate proceedings according to their Will.

Examples of Joint Tenancy ownership:

1. Husband and Wife Purchase a Family Home Together: If one spouse passes away, the property automatically transfers to the surviving spouse through the right of survivorship. This ensures a smooth transition of ownership without the need for estate proceedings or tax complications.
2. Family Cottage with Intent for Generational Ownership: A family may assume joint tenancy on a family cottage to maintain the property across generations. As title holders pass away, ownership transfers equally to the remaining title holders, effectively bypassing capital gains tax liabilities, as the property is maintained rather than sold. Joint tenancy also prevents the property from passing into the estate, avoiding associated fees and conditions. The right of survivorship ensures a seamless transfer of ownership to the surviving titleholders. (Note: This is not a tax avoidance strategy. While capital gains tax may still apply, under joint tenancy, the tax is not triggered upon transfer to a surviving title holder unless they decide to sell the property.)
3. Aging Parents Adding Their Child/Children to the Title: Parents may add their child or children to the property title to avoid estate proceedings. Upon the parents’ passing, the child or children inherit the property without delay and without incurring fees associated with the estate. They can then make decisions and proceed accordingly without the typical delays of estate proceedings.

Examples of Tenancy in Common ownership:

Investment Property Purchased by Multiple Investors: Multiple investors purchase an investment property together under a tenancy in common arrangement. Each investor owns a specific share of the property, which may or may not be equal to the others. If one investor decides to sell their share, they can do so without the consent of the other co-owners. Upon the death of one investor, their share of the property passes to their estate and can be inherited according to their will, rather than automatically transferring to the surviving co-owners.
Siblings Inheriting a Family Property: Siblings inherit a family property through a tenancy in common. Each sibling holds an individual share of the property, which they can sell or transfer independently of the others. If one sibling passes away, their share goes to their heirs or estate, not to the other siblings, allowing for individual control and the possibility of selling their portion separately.
Friends Purchasing a Vacation Home Together: A group of friends purchases a vacation home under tenancy in common. Each friend owns a percentage of the property that reflects their financial contribution. This arrangement allows each owner to have a distinct share that they can sell, transfer, or leave to their heirs. Unlike joint tenancy, the share does not automatically transfer to the other owners upon death; it becomes part of the deceased’s estate.
Canadian Citizen and Work Permit Holder Spouse Purchasing Residential Real Estate: A Canadian citizen whose spouse is a work permit holder may encounter the Foreign Buyer Tax when completing a residential real estate purchase. Under this tax, work permit holders are subject to a 20% tax in BC and a 25% tax in Ontario. However, by allocating a 1% share on the title to the non-Canadian spouse, the foreign buyer tax liability can be significantly reduced. (CAUTION: There are other critical conditions that the non-Canadian spouse must fulfill. Contact Marko Gelo directly to discuss further.)

Without a mortgage, title holders can be added or removed from a land title with relative ease. However, when a mortgage is involved, the situation becomes more complex. Lenders typically require mortgagors to be registered as titleholders, which can lead to unintended ownership arrangements if not anticipated. It is critical to understand these implications well in advance of your property purchase, rather than discovering them at the last minute on the completion date. Be sure to consult with a real estate lawyer early in the process to fully grasp the ramifications of your involvement in a mortgage transaction.

Wondering how to structure your ownership? Call or text Marko Gelo right now at 604-800-9593, or Click Here to schedule a free, no-obligation phone call with Marko. You can also call Marko on WhatsApp.