JV Questions - How to handle title issues...

Submitted by francois.lanthier@live.ca on Thu, 11/12/2020 - 22:44

I have recently purchased a property with a 50/50 JV partner in which I plan to execute the 'BRRRR' strategy. Reference the paragraph below from my lawyer:

''If both of you are going on title, one thing you should consider is in a few years down the road, if he comes off title, there would be land transfer tax for the consideration to come off title. That would be both the funds you pay him as well as any portion of his mortgage you would assume. It’s also likely that the mortgage may require you fully discharge and refinance the lending commitment. It could be quite expensive. One option might be (assuming you can get financing), would be to own the property as a corporation, and instead of transferring the property again, buying out his shares in the corporation. This evades the LTT issue, just the complication is you would have to deal with corporate tax and paperwork. The corporation could be a pain on the tax side if you are going to use it as a primary residence though. It might be reasonable to talk to an accountant if you consider this route.''

I have to consider the above and also try to plan strategically for minimizing the Capital Gains tax when I sell likely a few years down the line.

My question is, since this is only my second property and my only JV project with my partner, and I want to keep things as easy as possible, is it suitable to go the non-corporate way and only have one of the 2 partners on title, with a clear JV agreement minimizing risk for the other partner. When I have completed circa 50k of reno's, I plan to refinance and use these additional funds (assume they are not taxed??) to purchase a third property. If I sell say 3-5 years down the line, I would need to live within property for a certain amount of time to avoid the Capital Gains tax, correct? And how should I best deal with taxation between both JV partners, assuming this should also be 50/50 burden but also mindful of our individual tax brackets?

Appreciate any input you may have!

- March 16, 2021

Here's a question I recently received from one of my investor friends:

I have recently purchased a property with a 50/50 JV partner in which I plan to execute the 'BRRRR' strategy. Reference the paragraph below from my lawyer:

''If both of you are going on title, one thing you should consider is in a few years down the road, if he comes off title, there would be land transfer tax for the consideration to come off title. That would be both the funds you pay him as well as any portion of his mortgage you would assume. It’s also likely that the mortgage may require you fully discharge and refinance the lending commitment. It could be quite expensive. One option might be (assuming you can get financing), would be to own the property as a corporation, and instead of transferring the property again, buying out his shares in the corporation. This evades the LTT issue, just the complication is you would have to deal with corporate tax and paperwork. The corporation could be a pain on the tax side if you are going to use it as a primary residence though. It might be reasonable to talk to an accountant if you consider this route.''

I have to consider the above and also try to plan strategically for minimizing the Capital Gains tax when I sell likely a few years down the line.

My question is, since this is only my second property and my only JV project with my partner, and I want to keep things as easy as possible, is it suitable to go the non-corporate way and only have one of the 2 partners on title, with a clear JV agreement minimizing risk for the other partner. When I have completed circa 50k of reno's, I plan to refinance and use these additional funds (assume they are not taxed??) to purchase a third property. If I sell say 3-5 years down the line, I would need to live within property for a certain amount of time to avoid the Capital Gains tax, correct? And how should I best deal with taxation between both JV partners, assuming this should also be 50/50 burden but also mindful of our individual tax brackets?

Appreciate any input you may have!

- April 08, 2021

Is there a reason why both need to go on title? Generally the money partner goes on title and the working partner does not - A good JV agreement should protect the working partner.

- April 16, 2021

I can't help you with the JV part of your question but hope I can with the Capital Gains. Let's say you bought a house for $100,000 and rented it out for five years. In year six you move in and it becomes your principal residence. You need to have the property appraised before you move in. Let's say it's now worth $300,000 on the date you take possession, this means down the line when you sell (maybe a year later for $400,000) you would still pay capital gains on the $200,000 in appreciation from the time it was a rental, but no capital gains on the $100,000 it appreciated for while you were living there. I don't think there are any hard and fast rules about how long you need to live in it, but generally, a year should be acceptable. I think you could get away with less, but I haven't done it.

- June 20, 2021

Regarding the LTT implications, is this in the event that one JV partner buys out the other?