Tax Rules for Co-Owning Property With a Family Member in Ontario

Many parents add an adult child to the title of their home for estate planning or to help with a mortgage. It can look like a simple paperwork change, but it can affect your tax position.

This article explains the federal rules that matter most when family members own property together, and what questions to bring to a lawyer or accountant before you change title.

Why changing title raises tax questions

When you add a child to title, you are giving up part of your ownership. Tax rules can treat a change in ownership or use differently from how it feels in everyday life. Whether the change triggers a tax result, and how any gift or transfer is treated, depends on the facts, including the family relationship, whether money changes hands, and how the home is used. A lawyer or accountant can confirm this before you sign.

A capital gain is the proceeds of disposition minus the property's adjusted cost base and any outlays and expenses of selling it. For 2025, the capital gains inclusion rate is 50%, so half of a capital gain is taxable.

The principal residence exemption and co-owners

A property qualifies as your principal residence for a year only if it is a housing unit, you own it alone or jointly, you or certain family members lived in it at some time during the year, and you designate it. Joint ownership is allowed, but living in the home matters.

The exemption is designed to protect gains on a home people actually live in. If the property was solely your principal residence for every year you owned it, you usually pay no tax on the gain. If it was not, only part of the gain is exempt. That is why it matters whether the child lives in the home, or has another home that the family might want to designate.

One home per family

For 1982 and later years, a family can designate only one home as its principal residence for each year. This is the key limit when a family owns both a city home and a cottage. Earlier rules allowed more than one home per year, and common-law partners could designate different homes from 1982 to 1992.

A spouse or common-law partner is not part of your family unit for this limit if, throughout the year, they lived apart from you and were separated under a judicial separation or a written separation agreement.

A cottage can qualify because a home can still be ordinarily inhabited if you live in it for only a short time in the year. A property held mainly to earn income is generally not treated that way when the owner lives in it only briefly.

Rental income and shared ownership

If the co-owned property is rented, each co-owner reports their share of rental income or loss according to their ownership share. Rental income is reported on Form T776.

If the use of the property changes, such as when someone moves out and it is rented, you are generally treated as having sold it at fair market value and bought it back at the same amount. An election can be available when a principal residence becomes a rental, allowing you to designate the home for up to four years while it is in effect, and no CCA can be claimed.

What to do next

• List every property your family owns and who lives in each one.
• Decide whether the child will live in the home, and for how long.
• Ask a lawyer how the title change works and what it costs, including land transfer tax.
• Ask an accountant how it affects capital gains and the principal residence designation.
• Keep records of purchase price, improvements and any payments between family members.
• On a later sale, expect to report it on Schedule 3 and complete Form T2091(IND).

Frequently asked questions