What are the tax implications of joint tenancy and tenancy in common in Canada?

When two or more individuals decide to co-own a property, they typically have two options – joint tenancy or tenancy in common. These types of ownership have do different tax implications in Canada, which need to be considered before making an ownership decision. In this article, we will discuss the tax implications of joint tenancy and tenancy in common in Canada. In short, joint tenancy in Canada can avoid probate fees, but can lead to higher capital gains tax. Tenancy in common distributes the property according to wills.

Joint Tenancy
Joint tenancy is a type of ownership where two or more individuals own a property equally. When one owner dies, their share automatically passes to the surviving owner(s), and the property is owned entirely by the surviving owner(s). This type of ownership is common among spouses or common-law partners.

Joint tenancy has the following characteristics:

Capital Gains Tax
When the property is sold, the capital gains tax is calculated based on the increase in value of the property since it was acquired. In joint tenancy, the capital gains tax is calculated based on the value of the entire property, not just the share of the deceased owner. This means that if one of the joint tenants dies, the capital gains tax may be higher than if the property was owned as tenants in common.

Estate Planning
When one of the joint tenants dies, their share of the property automatically passes to the surviving owner(s) outside of their estate. This means that the deceased owner’s share of the property is not subject to probate fees or included in their will. As a result, joint tenancy can be an effective way to avoid probate fees and streamline the transfer of property to the surviving owner(s).

It is important to note that joint tenancy may not be the best option for estate planning in all cases. If one of the joint tenants has children from a previous relationship, joint tenancy may not be the best option, as the property may not pass to the intended heirs.

Income Tax
Joint tenants are each responsible for reporting their share of any rental income or capital gains on their personal income tax returns. If one of the joint tenants dies, their share of the rental income or capital gains is included in their final tax return.

Tenancy in Common has the following characteristics:

Tenancy in common is a type of ownership where two or more individuals hold a specified percentage of ownership in a property. When one owner dies, their share of the property is distributed according to their will. This type of ownership is common among business partners or friends who want to co-own a property. It is also common if couples have children from previous relationships.

In terms of tax implications, tenancy in common has the following characteristics:

Capital Gains Tax
When the property is sold, the capital gains tax is calculated based on the increase in value of each owner’s share of the property since it was acquired. This means that if one of the owners dies, the capital gains tax is calculated based on the value of their share of the property.

Estate Planning
When one of the owners dies, their share of the property is distributed according to their will or the laws of intestacy. This means that the deceased owner’s share of the property is subject to probate fees and included in their estate.

Income Tax
Each owner is responsible for reporting their share of any rental income or capital gains on their personal income tax returns. If one of the owners dies, their share of the rental income or capital gains is included in their final tax return.

Joint tenancy and tenancy in common have different tax implications in Canada. Joint tenancy can be an effective way to avoid probate fees and streamline the transfer of property to the surviving owner(s). However, joint tenancy may not be the best option for estate planning in all cases. Tenancy in common is a good option for business partners.

For more information on joint tenancy and tenancy in common and how mortgage refinancing may help with tax implications and mortgage payments, talk to a mortgage broker to discuss your options.