Co-Owning a Family Cottage in Ontario: Agreements and Exit Options

Many Ontario cottages are owned by brothers, sisters or cousins who inherited a place everyone loves. Things go well until costs rise, someone wants to sell, or the next generation has different plans.

This article covers what a co-ownership agreement can address, how a buyout generally works, and which rules affect a shared cottage. Forced sale through partition depends heavily on the facts and is something to discuss with a lawyer.

Why a written agreement helps

Without an agreement, each owner is left guessing about who pays for what and who decides. A written agreement can set out the rules in advance, while everyone still gets along.

• How use of the cottage is scheduled among families.
• How taxes, insurance, repairs and upgrades are shared.
• How big decisions are made, such as renting it out or building.
• What happens if an owner dies, divorces or cannot pay.
• How a buyout price is set and how long the buyer has to pay.

Buyouts and exits

A buyout means one owner buys out another. Agreeing on how value is set, for example by a valuation, avoids arguments later. Putting the process in the agreement is easier than negotiating it when relations are strained.

Tax can affect a buyout or sale. The capital gains inclusion rate remains one-half, and the proposed increase to two-thirds was cancelled on March 21, 2025. If an owner is a non-resident who sells Canadian real property, that owner must notify the CRA within 10 days of the sale. If no certificate of compliance is issued, the buyer may become liable for tax and may withhold 25% (50% for certain property) of the price, less any certificate limit.

Whether a buyout or sale can be forced by one owner, and how a court would handle a request for partition, depends on the facts. A lawyer can explain the options for your situation.

Splitting the land

Some families think about dividing the lot so each branch gets its own piece. In Ontario, a consent under the Planning Act is generally needed to sell, mortgage or charge part of a property, or to enter into any agreement about it lasting more than 21 years. If several severances are planned for the same area, the authority may decide that a plan of subdivision is needed instead.

When deciding a consent, the authority looks at whether it conforms with the official plan, whether the land suits the purpose, including lot size and shape, and whether there is adequate vehicle access, water supply, sewage disposal and protection from flooding. A decision can be appealed to the Ontario Land Tribunal within 20 days of the notice of decision, but only by key participants such as applicants, and neighbours generally cannot appeal.

Shared tax and property issues

A cottage can be designated as a principal residence under the Income Tax Act. A seasonal cottage can qualify because a unit counts as ordinarily inhabited even if a person lives in it for only a short period in the year. But if the main reason for owning it is to earn income, short stays will generally not make it ordinarily inhabited.

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. 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. Each owner should speak with an accountant about their own position.

Docks and boathouses can also raise questions. A Public Lands Act work permit may be needed to build a structure in physical contact with more than 15 m² of Crown or adjacent shore lands. Also, a cottage lot that fronts a shore road allowance does not reach the water's edge unless the allowance has been closed and conveyed to the owner.

What to do next

• Talk openly with all co-owners about goals before any dispute arises.
• Ask a lawyer to prepare a written co-ownership agreement.
• Gather title documents, tax bills and records of shared costs.
• Ask an accountant how a buyout or sale would affect each owner.
• If talks have broken down, get legal advice on buyout and partition options.

Frequently asked questions