Joint tenancy vs tenancy in common. It is typical for another individual, such as parents, spouse, siblings, or even friends, to help you co-sign to borrow the mortgage.
Understanding the nuances of the various ownership types and their legal and tax implications is not only important but empowering. This knowledge will give you the confidence and control you need in your home-buying journey. Understanding your options ensuring you make informed decisions that align with your goals.
Disclaimer: I’m not a lawyer or an accountant. This is not legal or taxation advice. This post is purely informational. Please speak with professionals in the respective field to get better and more accurate advice on their situation.
Joint tenancy vs tenancy in common
There are three main types of ownership
Sole Ownership
Tenancy in common
Joint tenancy
SOLE OWNERSHIP
An entity (an individual or a registered corporation) is the sole owner of the property. This type of ownership is straightforward. As you or your company are the sole owner of the property, along with all the privileges and obligations.
TENANCY IN COMMON
Tenancy in common is the form of co-ownership that allows for uneven portions of property ownership. For example, you, your mother, and your sibling can all own a property. However, you can own 50% of the house, your mother owns 30%, and your sibling owns 20%. Another example could be three friends own a property, where one owns 60%, another 25%, and the third 15%.
Even though the ownership share may be unidentical, all owners have equal rights to the entire property. No owner can exclusively claim a particular area.
In a tenancy in common, each owner can sell or transfer their share to a third party as they see fit without the permission of other owners. Tenancy in common does not have the right of survivorship. It means if a co-owner passes away, they can transfer their share through their will or the current applicable law. When you sell the share of ownership, you are disposing it at market value. Any resulting capital gain tax will be your or your estate’s responsibility.
Regarding capital gains tax, the principal residence is not subject to capital gain tax in Canada (as of 2024). If parents help a child co-sign for a mortgage and set up a tenancy-in-common with the children owning 99% of the property and the parents 1%, the capital tax will only apply to the 1% because the 99% the children own is from their principal residence.
JOINT TENANCY
All owners have an equal share of the property in a joint tenancy. One of the key features of joint tenancy is the ‘right of survivorship ‘. This means that if one of the owners passes away, their ownership share will automatically be transferred to the surviving owners. They can’t sell or transfer to another person their share.
In a joint tenancy, the co-owner can’t transfer or sell their ownership share to a third party. However, joint tenancy can reduce probate fees and periods should one owner pass away.
In the case that the property is not the primary residence of the co-signing party, if there is a transfer of ownership, the co-signing party will incur taxation liability on their portion of ownership.
CLOSING
It’s important to talk to law professionals about the method of ownership registration that is right for you. So, Spending a little time planning for this will save so much money and headaches that will be unnecessary later on. Knowing your options before hand providing you with a sense of relief and security in your property ownership journey.
This article gives you some insight into the differences between joint tenancy and tenancy in common. Thanks for reading my article. I will see you in the next one.
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