Tenants in Common vs. Joint Tenancy: What’s Right for You

Buying a home with one or more other people requires you to make an important decision: do you register your home as a joint tenancy or as tenants in common? Your choice will affect your equity, your future taxes, and your ability to make decisions regarding the home. What’s the difference and which option is better for you? Let’s find out. 

What’s the Difference Between Joint Tenancy and Tenants in Common? 

When two or more people buy a home under a joint tenancy situation then each of the homeowners are considered to be co-owners of the entire property. 

Under a tenants in common arrangement, each person agrees upon an individual equity share, similar to the way that shareholders hold stakes in a company. One owner, for example, may own a 75% stake in the home, while the other would take an ownership stake of 25%.

Equity of Ownership Implications

If the home is being bought primarily for investment purposes, it may be better to register as tenants in common. This is the easiest way to ensure that each homeowner gets the proper amount of equity that they’re entitled to if the home is sold. 

Tax Benefits of Joint Tenancy and Tenants in Common

The taxation situation will be quite different under a joint tenancy situation than it will be under tenants in common. This involves the right of survivorship, capital gains, and property transfer tax, each of which warrant their own explanation. 

Right of Survivorship

In joint tenancy, when one owner passes away the remaining owner(s) automatically absorb that person’s share. In cases where there are more than two owners, this continues with the subsequent passing of each owner. 

In a tenants in common arrangement, the home equity of a deceased owner becomes part of their estate, similar to any other possession. This makes it easier for them to bequeath their portion of the home equity to a specific beneficiary, but, on the downside, it makes that equity taxable. Joint tenancy bypasses these taxes, but makes it more difficult to pass your equity along to a beneficiary of your choice. 

Capital Gains

In Canada a principal residence is not subject to capital gains taxes. If you buy a principal residence for the purposes of living in it and later sell it at an increased value, your gains are not subject to capital gains taxes. 

Alternately, capital gains made as a result of an investment property are taxable. If a group of investors sell an investment property at a profit, then each investor would pay capital gains on their proportionate share.

However, consider the example of a home bought jointly by parents and a child for the child to live in. If the home is purchased as tenants in common the child could claim a 99% equity, with the parents claiming the remaining 1%. If the home is later sold at an increased value, the capital gains tax will only apply to the parents’ 1% of the equity because the remaining 99% falls under the primary residence exemption. 

Property Transfer Tax

A similar rule applies to property transfer taxes. If one party is exempt from PTTs and the other is not, the tax will only be applied to the portion of the equity owned by the non-exempt party, provided that a tenants in common registration is in place. 

Asset Control

Another important consideration when weighing joint tenancy against tenants in common is asset control. Under joint tenancy each tenant owns 100% of the property, meaning that all parties would have to sign off on any changes in ownership. 

As we discussed earlier, a tenants in common situation is more like company ownership: each party is free to sell their share of the home without receiving permission from the other owners. 

A  Word on Mortgages

Lenders don’t care if you register as a tenant in common or a joint tenant, but it’s almost impossible to mortgage just one person’s share of tenants in common without taking into account everybody else’s. 

Should You Register as Joint Tenancy or Tenants in Common?

With so many variables, there’s no one answer to this question. Instead, it’s a matter of deciding what’s right for you. What are your plans for the house? What are your long term goals? Making the correct decision requires big picture thinking. 

At Pinsky Mortgages we not only help our clients get mortgages, but we aim to ensure that they get the right mortgage for their particular situation. This means demystifying the mortgage process, and gaining an understanding of mortgage insurance, the home buyers’ plan, and much more.

There’s a lot to consider, which is why we offer free consultations geared to help us understand you and your plans. Once we’ve done this, we can confidently provide you with the advice best suited to you. 

Book your free consultation!