Hello everyone, this is Paul Choi from the Juris Notary office. Now that we have discussed different types of ownership that you can choose to own your real estate in BC in the previous columns, let discuss different considerations for acquiring an unequal division of ownership in a property that is often inquired by my clients. There may be many circumstances or situations where you may want to take unequal division ownership in a property – although an exhaustive list cannot be provided, I would like to discuss top 3 situations where my client has inquired about owning a property in an unequal share.

There are many aspects to consider when deciding on the division of ownership so please call our office at 604-416-0211 for consultation on your specific case.

Proportionate share to contribution

There could be many reasons why co-owners may decide on the unequal division of ownership. It could simply be due to a different amount of contribution to the purchase of the property and the share of ownership is reflecting that.

Tax purposes

Alternatively, it could be in consideration of capital gains or income tax later on. If you decided to invest in a property with your brother and collect rent on it, you may want to hold an unequal share of the property after consulting an accountant so that your yearly income tax remains low or your capital gains tax is minimized.

Same can be applied to the property transfer tax, in terms of exemptions and additional tax; however, it should be extremely cautioned as any tax avoidance transaction is prohibited by the Property Transfer Tax Act and you could be penalized. An “avoidance transaction” is defined as any transaction that would result in a tax benefit either directly or indirectly.

This means, if you are planning to put your spouse as 99% as she qualifies for the first-time home buyer and want the exemption, or she is a Canadian resident, but you are not and putting 99% will significantly reduce the additional tax, that transaction will very likely be considered a tax-avoidance transaction by the property taxation branch. Even if you truly contributed only 1% of the funds into the property and thus only own 1%, the property taxation branch may think that is unusual for a couple and may audit your tax return for further proof.

Your transaction will have to be reasonably considered to have been undertaken primarily for bona fide purposes other than to obtain a tax benefit.

It seems that the property taxation branch has increased their audits and many of my clients are receiving follow-up letters, requesting a proof that they meet the qualification for the exemptions that they received or that their transaction was for bona fide purposes.

Mortgage approval purposes

Recently with tougher standard for mortgage approval, I have seen more clients who decide to add their family member as co-owners to get mortgage approval. For example, it could be a daughter purchasing her first condo, but she may not qualify for a mortgage with her income alone. Therefore, the bank may suggest, and the daughter may agree to add her father as the co-owner so that she can get the mortgage approved. Of course, the bank may approve the father being added on as a guarantor, but some may require the father to be added on as a co-owner. However, my experience has been that the bank does not care how much share the father has on the property, as long as he is on the title. For this reason, you may decide to add the father as just 1% owner and 99% ownership to the daughter.

With the provincial government revamping their efforts to catch fraudulent property transfers that evade the tax that is supposed to be paid, it appears that the frequency of audits and follow-ups seems to have increased. Your unequal division ownership may be legitimate and completely bona fide; however, please be aware that if it seems suspicious, the property taxation branch may contact you for follow up information.

If you have further questions, please do not hesitate to contact our office and speak to myself or any of my friendly staff.

This is for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind.