Real Estate Joint Ventures in Ontario: How to Structure the Deal

Pooling money and skills is a common way to buy a rental building, assemble land or build and sell. One investor brings capital, another finds the deal, a third manages construction. The hard part is rarely the idea. It is deciding how the group holds the property and what happens when people disagree.

This article walks through the usual structure options, the terms a joint venture agreement should cover, and the legal and tax risks that surprise investors. It is general information, not advice. The right structure depends on your goals, your tax position and who is in the group, so a lawyer and an accountant should confirm the details.

What a joint venture actually is

"Joint venture" is a business label, not a single legal form. It describes two or more people working together on a project, usually one property or one development, with an agreed split of money, work and profit. Who holds title, who signs the contracts and who owes what to whom are the practical questions to settle in writing.

Because the label does not decide your rights, a handshake or an email thread is a weak foundation. Real estate projects run for months or years, involve large sums and often end in a sale. Disagreements about money, timing and control are common, and a clear written agreement is what you will rely on when they happen.

The three usual structures compared

Most groups choose among a partnership, a corporation, or direct co-ownership of the land. The table gives a plain-language comparison. The details of each depend on the documents you sign and your tax situation.

Some groups combine these, for example a corporation that owns the land with the investors holding shares through their own companies. Mixing structures can solve one problem and create another, which is why an accountant and a lawyer usually look at the plan together before any money moves.

What your joint venture agreement should cover

Whatever structure you choose, the written agreement is where you decide things in advance, while everyone still gets along. These are the topics most worth settling.

• Who contributes what: cash, land, services or guarantees, and when each contribution is due.
• How decisions are made, and which decisions need everyone's approval.
• Who manages the project day to day, and how they are paid.
• How profits, losses and refinancing proceeds are shared.
• What happens if someone cannot or will not contribute more money.
• How a partner can sell or transfer their interest, and whether the others get first choice.
• What happens on death, bankruptcy, divorce or a dispute.
• The exit plan: how long you plan to hold, how the property is listed, and how the sale proceeds are divided.

The exit plan matters more than most investors expect. Under the Partition Act, joint tenants, tenants in common and other interested parties in Ontario land can be compelled to partition or sell the property. If you co-own title and a partner wants out, that rule is part of the background, so the agreement should say how and when an exit happens rather than leaving it to a court.

Tax and cost risks to plan for

CRA says that profit from buying to flip, assign, or build and sell is business income, not capital gain, and that flips do not qualify for the principal residence exemption. CRA looks at the type of property, how long it was owned, the seller's history of similar sales, work done and the intention at purchase. A joint venture built around a resale should assume the profit may be taxed as business income and get tax advice on that basis.

Land transfer tax is a real cost of getting into the deal. For agreements after November 14, 2016, Ontario's provincial rate is 0.5% to $55,000, 1.0% from $55,000 to $250,000, 1.5% from $250,000 to $400,000 and 2.0% above $400,000, with 2.5% above $2,000,000 for land with one or two single family residences. The Non-Resident Speculation Tax is 25% and has applied since October 25, 2022, in addition to the general land transfer tax. If any member of your group is not a resident, ask early whether it can apply.

• If a partner is a non-resident seller on a later sale, a buyer should get a CRA certificate of compliance before releasing funds, because the buyer may become liable for the seller's unpaid tax.
• A CRA certificate of amounts owing is registered in the Federal Court, has the effect of a judgment, and can be registered against property in a province to create a charge.
• Reporting a sale is not optional: CRA says all sales of real property must be reported, even where there is no gain.

Putting the deal on title

Once the structure is chosen, the property has to be transferred into the right name. On Ontario's electronic land registration system, most transfer of title documents need two different lawyers to sign for completeness, with limited exceptions. A lawyer also cannot act for both transferor and transferee in a transfer of title, although a firm of two or more lawyers may act for both if different lawyers in the firm represent each party.

This is another reason to settle the structure before you sign an agreement of purchase and sale. Buying in the wrong name and then moving title can mean extra legal work, and a lawyer can tell you what applies to your situation.

What to do next

• Write down the deal in one page: who contributes what, the plan for the property and the expected timeline.
• Meet with an accountant about how profit would be taxed and how the group should hold the property.
• Have a lawyer prepare or review the agreement before you sign an offer or release funds.
• Decide the exit plan and what happens if a partner defaults, disagrees or wants out.
• Confirm whether any member is a non-resident, and ask about land transfer tax and the Non-Resident Speculation Tax.
• Keep records of every contribution, expense and decision.

Frequently asked questions