Buying a Cottage With Family or Friends in Ontario: Key Issues

Buying a cottage with siblings, cousins or friends can make an expensive property reachable, and it can also turn a lake weekend into a dispute. The problems rarely come from the purchase itself. They come later, when one owner wants to sell, someone stops paying their share, or an owner dies.

This article explains the main choices and issues to settle at the start, including how title is held, what an agreement should cover and how the tax rules for cottages work. The details of your arrangement depend on the facts, so a lawyer and an accountant should confirm them.

Joint tenancy or tenants in common

These are the two common ways several people hold title. In plain terms, joint tenancy is generally described as owners holding the property together, with a surviving owner taking over when another dies. Tenants in common each hold a separate share, which can usually be dealt with in a will.

Friends and blended families often prefer separate shares, because each owner can plan for their own estate. Spouses sometimes prefer joint ownership. The choice affects estate planning, borrowing and selling, so ask a lawyer how it fits your group before you close.

What a co-ownership agreement should cover

Title alone does not say who uses the cottage in July or who pays for a new roof. A written agreement fills that gap. Think through these areas before you buy:

• Use: weekends, holidays, guests, pets and rentals, and how schedules are set.
• Costs: purchase share, carrying costs, repairs, insurance and what happens when someone cannot pay.
• Decisions: which choices need everyone to agree, such as renovations, a new dock or a sale.
• Exit: how an owner can sell, who gets first chance to buy, how value is set and what happens on death, divorce or bankruptcy.
• Disputes: a step-by-step way to resolve disagreements before going to court.

Cottage properties bring their own cost items. A septic installation, repair or upgrade needs a permit and must be inspected, and tanks must be cleaned whenever sludge and scum fill one-third of the tank's working capacity. Building a dock or boathouse that touches more than 15 m² of Crown or adjacent shore lands may need a Public Lands Act work permit. Put these in your budget and decide who handles them.

Tax: the principal residence exemption and the cottage

A cottage can be designated as a principal residence under the Income Tax Act. A seasonal cottage can qualify because a housing unit counts as ordinarily inhabited even if a person lives in it for only a short period in the year.

• For 1982 and later years, a family can designate only one home as its principal residence for each year, which forces a choice between a city home and a cottage.
• If the main reason for owning the unit is to earn income, short stays will generally not make it ordinarily inhabited.
• Where the land under the housing unit is larger than one-half hectare, the excess generally does not qualify unless the owner shows it was needed for using the home as a residence.
• On a sale, report it on Schedule 3 and designate the property on Form T2091(IND); late designations may be accepted, but a penalty may apply.

The capital gains inclusion rate remains one-half, and the proposed increase to two-thirds was cancelled on March 21, 2025. Each co-owner's tax position can differ, so each should speak to an accountant.

If any co-owner is a non-resident, special rules apply on sale. A non-resident must notify the CRA within 10 days of the sale, and without a certificate of compliance the buyer may become liable and may withhold 25% (50% for certain property) of the price, less any certificate limit.

Checks to make before you buy

• Does the lot reach the water? A shore road allowance one chain (66 feet) wide means a lot may not reach the water's edge unless the allowance was closed and conveyed.
• Is development near the water regulated? A conservation authority permit is needed for development in regulated areas such as floodplains, shorelines, wetlands and watercourses.
• Does the septic system meet clearance rules? A treatment unit must be at least 15 m from a well and from lakes, rivers and streams, and at least 3 m from a property line.
• Is the access secure? Confirm how you reach the cottage and who maintains the road.

What to do next

• Meet as a group and write down expectations for use, money and exit before making an offer.
• Ask a lawyer to explain how each way of holding title would work for your group.
• Ask an accountant how the principal residence designation would affect each owner.
• Request septic, title and access information early in the purchase.
• Have the agreement signed at or before closing, not afterward.

Frequently asked questions