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Tax time bomb

Please note: This article does not pertain to residents of Québec.

Are you thinking of adding your adult child as a joint owner to any of your property? If so, you should be familiar with the legal and tax consequences of joint ownership.

Joint tenancy vs. tenancy in common

The common law, which applies in all Canadian provinces except Québec, recognizes the following two forms of joint ownership:

A. “Joint tenancy”, sometimes also referred to as “joint tenancy with a right of survivorship”, whereby each owner has an equal and identical interest to each other owner, and when one of the owners dies, his or her interest will be transferred by an automatic right of survivorship to the surviving joint owners

1. “Tenancy in common”, whereby the interests of each owner do not need to be identical and when one of the owners dies, his or her interest will be transferred to his or her estate, from which it will be distributed in accordance  with his or her will

This article only addresses the “joint tenancy” form of ownership with a right of survivorship, which is the most common form of co-ownership.

Legal ownership vs. beneficial ownership:

The common law also distinguishes between “legal ownership” and “beneficial ownership”. If an individual is the legal owner but holds the property for the benefit of another person, then the individual is acting as trustee and holding the property in trust for the other person who is the beneficial owner (sometimes called the “beneficiary”). The legal owner gives instructions with respect to the property, but may not personally benefit from the property unless the legal owner is also a beneficial owner.

Presumption of resulting trust In 2007, the Supreme Court of Canada ruled that when a parent gratuitously adds an adult child as a joint tenant to an asset, it will be presumed that the parent did not intend true joint tenancy, but rather that the child holds his or her interest on a “resulting trust” for the benefit of the parent and the parent’s estate, and that the child does not receive a “beneficial” interest in the property at the time that he or she was added – only a “legal” interest.

If this presumption holds true, then:

      1. There is no change in beneficial ownership when the parent adds the adult child.
      2. During the parent’s lifetime, the parent must report all the future income and capital gains from the property.
      3. During the parent’s lifetime, the child will not have any rights to any part of the asset, and neither will the child’s creditors.
      4. In the event the parent dies first,


a. The parent will realize all the accrued capital gains on his or her tax return in the year of  death.
b. The asset will be considered part of the deceased parent’s estate.
c. The child should transfer the asset to the parent’s executor, to be distributed in accordance with the parent’s will (i.e. the child will not necessarily be the only one who will enjoy the asset.)
d. If the deceased parent’s executor is required to apply for probate, and the application for probate requires full disclosure of all estate assets, then the executor should include the value of the “jointly” held asset. This may mean that probate fees may be payable in respect of the asset.

Rebutting the presumption of resulting trust with evidence of a “gift”

The presumption of resulting trust can be rebutted with evidence of the parent’s
intent to “gift” an interest to the child. For example, when dealing with a bank
account or an investment account, the child would have to prove that either:

1. The parent intended to gift the right to withdraw funds from the account(s)
to the child during the parent’s lifetime (whether or not the child exercised those rights), and also to gift the balance of the account to the child alone on the parent’s
death through survivorship, with no expectation that the child would “share” with other estate beneficiaries. (This would generally be considered a “true joint tenancy” arrangement.) or

2. The parent intended to retain exclusive beneficial ownership of the account
until his or her death, but to allow the child to take the balance of the account through survivorship, with no expectation that the child would “share” with other estate beneficiaries. If evidence of “gift” is produced, then:

a) There is a change in beneficial ownership when the parent adds the adult child, potentially resulting in a partial disposition of the asset. If there is an unrealized capital gain accrued within the investment, part of this gain would have to be reported at the time the joint owner is added, potentially resulting in a  liability for the parent.

b) During the parent’s lifetime, the parent and children should report
an equal share in the future income and capital gains on the asset.

c) During the parent’s lifetime, the child will be a part owner of the assets,
meaning that the child’s interest could be exposed to claims made
by the child’s creditors (including the child’s spouse).

3. If the parent dies first,

a. The parent will realize the accrued capital gains with respect to his or her remaining share in the asset on his or her return in the year of death.
b. The asset will not be considered part of the deceased parent’s estate.
c. The child will inherit by right of survivorship, free and clear of any tax claims made by other estate beneficiaries.
d. Probate fees will not apply to the asset.

What is evidence of gift?

Usually the battle begins when the parent has died, and the child who was added as joint owner wants to retain the property while the other beneficiaries of the deceased parent’s estate or the creditors of the parent’s estate want access to or a share of the asset. What is appropriate “evidence of the parent’s intent to gift”? The wording of the application for a joint account with a financial institution, or the wording used with the land titles or land registry office is generally insufficient to settle the matter. In the absence of a clearly written contract (ideally prepared by a lawyer at the time that the joint ownership arrangement is established), the courts will have to infer what the parent’s intentions were by studying the circumstances. It is difficult to predict what a court might rule in a given factual situation, as the courts have given different weight to similar facts in different cases.

Which end result do you want to apply – a resulting trust, or true joint tenancy? If you hold an asset in joint ownership with an adult child, what end result do you want? Do you want that child to have to share the asset with the other beneficiaries in your will (i.e., your other children and relatives, friends, or favourite charities)? Or do you want your child to inherit the asset free and clear upon your death, with no obligation to share with the other beneficiaries of your estate? In the absence of a clearly worded contract between you and your child, the end result may well be that your child and your other estate beneficiaries will spend all their time and money fighting about your “intentions” and very few of the assets will remain to be enjoyed.

Example: Julia has three adult children, Finnegan, Hazel, and Henry. During her lifetime, Julia subsidized Finnegan’s medical education, and made the down payment on Hazel’s house. Julia has never made any similar gifts to Henry, who has always been able to meet his own expenses. However, Julia did add Henry as joint owner to a substantial investment account which Julia controlled during her lifetime.

At the time of Julia’s death, the investment account is worth $95,000 and after all her debts and taxes are paid, her estate assets, excluding the investment account, are worth $600,000. Julia’s will divides her estate into three equal shares between Finnegan, Hazel, and Henry. How much should each child receive? The courts will presume that when Julia added Henry as joint owner, she intended to create a resulting trust, meaning that Henry will have to split the investment account in equal shares with Finnegan and Hazel, in addition to splitting the rest of Julia’s estate. Thus, each of Finnegan, Hazel, and Henry will receive 1/3 of $695,000, or $231,667. If Henry can prove, on the balance of probabilities, that Julia intended a gift when she added Henry as joint owner, then Finnegan and Hazel will each receive $200,000, and Henry will receive $295,000. If Julia wanted to be certain that upon her death that either Henry would have to share the funds in the investment account with his siblings or that he would receive the funds outright as a gift, then Julia should have signed a contract with Henry which stated what her intentions were, and they should have behaved consistently from an income tax perspective with respect to the contract thereafter.


Before adding a child as a joint owner, consider first going to a lawyer to write a contract in which you clearly explain your intentions and expectations and your child agrees to them. If you have already added an adult child as joint owner to an asset, consider going to a lawyer to document your expectations today. The contract will hopefully prevent possible fights after your death. Lastly, if you are contemplating joint ownership with an adult child but want your child to “share” the asset with other beneficiaries, be aware that the asset may still be subject to probate and probate fees, making this form of joint ownership a strategy with arguably little value. Again, you should seek the advice of an estate planning lawyer to help ensure your wishes are addressed in the end.

Written by Mohamad M. Sawwaf, CFP, CPCA
Financial Consultant and Division Director
IGM Financial Inc.

He can be reached at [email protected].

Please note: this article is not a substitute for legal advice. This article only provides general information which you may find helpful. You may wish to consult with a qualified professional financial or legal advisor, as appropriate.