Property title is often referring to ownership of the property and the rights that are associated with it. When the property gets sold, the title transfers from the seller to the buyer upon registration of a deed. However, title could also be transferred outside the traditional purchase/sale arrangement. An individual or a corporation may have different reasons to change title. Title transfers are often needed when property owners refinance and add or remove a family member from the title or experience a separation. In this article we will explain the process of transferring title and examine potential challenges that one may face when dealing with title transfers. We will also discuss possible tax implications.
What is a Title?
Title is legal ownership of a property and the rights to possess and use it. This ownership may belong to one person or be shared among multiple individuals or entities, such as spouses, business partners, or corporations.
When a property has multiple owners, each owner can be either a joint tenant or a tenant in common.
With joint tenancy, ownership automatically passes to the surviving co-owner(s) when one owner dies. There are no designated shares of ownership with joint tenancy rather both parties own 100 percent of the property. Only the last surviving owner can leave the property to someone through a will. One of distinct features of a joint tenancy is the ability of one of the owners to sever the joint ownership. This can be done without consent of the other owner on title. However, it is important to note that the percentage of the ownership will be divided equally between the parties registered on title. Once joint tenancy is severed, for example, between two individuals, the ownership will be equally divided and held 50/50 as tenants in common.
With tenancy in common, an owner can assign any specific share to the ownership and therefore has more flexibility. Unlike joint tenants, tenants in common can own unequal shares of the property, as agreed among the owners. Despite different percentages being assigned to individual owners, if there is a mortgage on title, all the owners would be jointly and severely liable for the payment of such mortgage. Furthermore, unless there is a comprehensive co-ownership agreement in place, issues such as rights of possession, who is responsible for carrying costs, mortgages, what happens in case of a default, taxes etc. could become problematic. On passing, an owner’s share does not automatically transfer to the surviving owners. Therefore, the deceased owners’ share will be dealt with as part of their estate administration.
Therefore, a clear understanding of ownership rights under joint tenancy and tenancy in common is crucial for parties when purchasing a property or when deciding on how to hold title.
Why transfer title?
There are many circumstances in which a title transfer may become necessary during ownership. Before proceeding, it is important to carefully consider several factors—most notably the financial implications of the transfer.
Separation/Divorce
A common circumstance requiring a transfer of title arises in the context of separation or divorce, where ownership interests between former partners need to be restructured. In such a case, the lawyer completing title transfer would require a copy of separation agreement, divorce certificate or a court order with specific instructions to change ownership of the property. Law Society of Ontario state that a lawyer may not act for both the transferor and transferee in a transfer of tile to real property. However, a lawyer may act for both parties in the transfer to real property if the transferor and transferee are “related parties” as defined in s. 251 of the Income Tax Act. Spouses would be considered related parties within the meaning of the ITA and therefore two lawyer rules may not apply. Notwithstanding any exceptions, many lawyers will insist on separate legal representation when transferring property between separating or divorcing spouses, to eliminate potential conflicts of interest and to ensure that each party receives independent advice regarding their respective rights. If the spouses are not getting separated or divorced, the “two lawyer rules” is not mandated, it is however, highly recommended.
Mortgage financing
Another reason a title transfer may be necessary is to meet lender requirements for mortgage financing. Individuals or corporations may need to add or remove parties from title, or restructure ownership, to meet mortgage qualification requirements. In a situation where the bank request that an individual be added to title to ensure mortgage approval due to need for additional income or removed due to poor credit, all parties to the transaction should consider implications of such transfer. Firstly, who is the person being added to title and their relationship to the current owner(s). If a spouse is being added to/removed from title for mortgage qualification purposes, the transaction is generally more favourable from both a tax and cost perspective. Transfers between spouses often qualify for land transfer tax exemptions and typically do not trigger the same level of tax consequences that may arise when adding non-spousal parties. That said, the structure of the transfer and the parties’ intentions should still be carefully documented to avoid future disputes or unintended legal consequences.
Adding a parent or adult child to title introduces additional complexity, as such transfers may trigger both land transfer tax and potential capital gains tax consequences. Unlike spousal transfers, land transfer tax will generally apply unless there is a clearly established and well-documented trustee–beneficiary relationship. The Ontario Ministry of Finance takes a strict approach to these exemptions, and informal or poorly documented arrangements will not suffice.
From a tax liability perspective, if all parties occupy the property as their principal residence, capital gains exposure may be minimized through the principal residence exemption. However, complications arise where one or more parties maintain a separate primary residence.
A common example is where a parent is added to title solely to assist an adult child in qualifying for a mortgage. While this may satisfy lender requirements, it can create unintended tax consequences. If the parent does not ordinarily reside in the property and owns another principal residence, their interest may be treated as an investment. As a result, upon a future sale, the parent may be liable for capital gains tax on their proportionate share, even if the property served as the child’s principal residence.
Another important consideration when adding a parent or adult child to title is the long-term plan for both the property and the individual who is not using it as their principal residence. What may seem like a short-term solution for mortgage qualification can create complications later.
For example, consider what happens when the mortgage on your primary residence matures while you remain on title to another property (the “child/parent property”). If you seek to refinance or switch lenders, that additional property will typically be treated as a liability—not an asset—due to the existing mortgage. This can negatively impact your debt servicing ratios and may result in the new lender declining your application unless the secondary property is addressed.
In many cases, the new lender may require that you be removed from title and the mortgage on the other property. However, this can create further issues. Removing a party from title may trigger a default under the existing mortgage, particularly where the original financing was approved based on joint ownership. Even if the lender agrees to release one party, the remaining owner (parent or child) will likely need to requalify for the mortgage on their own.
Finally, transferring an interest out of the property may give rise to land transfer tax and potential income tax consequences, depending on how the transfer is structured.
For these reasons, adding family members to title should be approached with a clear long-term strategy, rather than as a simple or temporary financing solution. Accordingly, any transfer involving non-spousal parties should be carefully structured and documented, with both legal and tax advice obtained in advance, particularly where reliance is placed on a trust relationship to mitigate land transfer tax.
Trustee/Beneficiary
Title transfers may also occur in the context of a trustee–beneficiary relationship. In these situations, legal title is held by one party (the trustee), while the beneficial ownership rests with another (the beneficiary). A transfer of title may be required to either place the property into trust or to transfer it out of trust to the beneficial owner.
Where a true trust relationship exists—and is properly documented—such transfers may qualify for an exemption from land transfer tax. However, the Ontario Ministry of Finance applies strict guidelines in assessing these claims, and the parties must be able to clearly demonstrate trustee/beneficiary relationship. Supporting documentation, such as a declaration of trust, is critical.
It is important to note that improperly structured or undocumented arrangements may be reassessed, resulting in unexpected land transfer tax liability, penalties, and interest. As such, trustee–beneficiary transfers should be approached with careful legal and tax planning.
Survivorship applications
Although not technically a transfer of title, applications by right of survivorship should be considered in this context. A survivorship application is typically used to vest title in the surviving owner where property was held in joint tenancy.
In straightforward cases, such as spouses holding title as joint tenants, the process is generally simple and can be completed with minimal documentation.
However, greater complexity arises where joint tenants are not spouses. For example, consider a situation where an adult child is added to a parent’s property as a joint tenant, often for financing or estate planning purposes. If the parent passes away, it may appear that title can be transferred entirely to the surviving child by way of survivorship. In some cases, this is correct—but not always.
Caution is required where the deceased had a spouse who was not on title, and the property qualifies as a matrimonial home. Under Ontario law, a surviving spouse has statutory rights in a matrimonial home, regardless of whether they are registered on title. In such circumstances, it may be deemed that the joint tenancy was effectively severed immediately prior to death to protect the surviving spouse’s rights.
As a result, a survivorship application may not be the appropriate mechanism to transfer title solely into the surviving joint tenant’s name. Instead, the property may need to be dealt with through the estate, or with the consent and involvement of the surviving spouse.
Given these nuances, survivorship applications, particularly in non-spousal ownership arrangements, should be carefully reviewed to ensure compliance with family law and estate considerations
Financial/ Tax Liability
When transferring title, property owners should expect additional costs, including legal fees (particularly where separate representation is required), registration fees, land transfer tax, and potentially capital gains tax.
Generally, land transfer tax (LTT) is payable upon the registration of any change in ownership. LTT is calculated based on the value of the consideration given for the transfer, which may include the purchase price, the assumption of an existing mortgage, or the fair market value of the interest being transferred where no consideration is exchanged, often treated as deemed disposition.
For example, transfers between spouses or former spouses made pursuant to a separation agreement, court order, or as part of a divorce settlement are generally exempt from LTT. Another example is trustee to beneficiary transfer. Outside of these limited circumstances, LTT will typically apply to most transfers of an interest in land. While the rule is that LTT is payable on every conveyance, certain exemptions or structuring options may reduce LTT where properly applied. It is therefore important to obtain legal advice to ensure the correct amount of LTT is assessed and any available exemptions are properly claimed.
Another significant consideration is capital gains tax. While some title transfers are undertaken for short-term objectives, such as assisting a family member with mortgage financing, the long-term tax consequences can be substantial. Where a property (or a portion of it) does not qualify as a principal residence for all parties on title, a transfer or future disposition may trigger capital gains tax.
For these reasons, any decision to transfer title should be made with careful planning and with the benefit of both legal and tax advice, to fully understand the immediate costs as well as the longer-term implications.
