Splitting a cottage between siblings, cousins or close friends puts waterfront within reach for a lot of buyers. It also ties your finances and your summers to other people for years. The groups that do well treat it like a small business from day one.
How you hold title
When two or more people buy property in Ontario, the deed says how they own it. There are two choices, and they lead to very different results.
| Joint tenancy | Tenants in common | |
|---|---|---|
| Shares | Everyone owns the whole property together, in equal shares | Each person owns a set share, and shares can be unequal |
| When an owner dies | Their interest passes automatically to the surviving owners | Their share goes to their estate and passes under their will |
The automatic transfer in a joint tenancy is called the right of survivorship. Spouses usually want that. For two siblings, it means the survivor ends up with the whole cottage and the other sibling’s children get nothing from it. That is why families and friends usually choose tenants in common, so each owner can leave their share to their own heirs and shares can match what each person paid.
Decide before closing, and make sure each owner’s will lines up with the choice.
Put a co-ownership agreement in writing
The deed only says who owns what. It says nothing about who gets the August long weekend or who pays for a new septic bed. A co-ownership agreement fills that gap. Have a lawyer draft it before closing.
Scheduling
- How weeks are divided, and how prime weeks and long weekends rotate each year
- Rules for guests and pets
- Whether the cottage can be rented out, and how income is shared. Many townships now license short-term rentals, so check the local rules. See renting your cottage.
Costs
- How the mortgage, property tax, insurance, hydro and road fees are split
- A reserve fund for big items such as a roof, dock or septic system
- What happens when someone misses a payment
Repairs and decisions
- Who can approve spending, and up to what amount
- How votes work for larger projects
Exit and buyout
This is the part most groups skip. People lose jobs, move away or stop using the place.
- How much notice an owner must give to leave
- A right of first refusal, so the other owners can buy the share before it is offered to outsiders
- How the price is set, such as one or two independent appraisals
- What happens if nobody can buy the share, including a sale of the whole property
Death and divorce
- Whether the other owners have the right to buy a deceased owner’s share from the estate
- Whether a spouse or children can step into the owner’s place
- What happens if an owner separates and their share becomes part of a family law claim
Financing with several names on the mortgage
Lenders will put more than one borrower on a cottage mortgage, but there are points to understand first.
- Everyone is responsible for the whole debt. If one owner stops paying, the lender can look to any of the others for the full payment, not only a share of it.
- Everyone has to qualify. The lender reviews each person’s income, debts and credit. One weak application can change the rate or sink the approval.
- It counts against each of you. The cottage mortgage appears on every borrower’s credit file and can reduce what each person can borrow later for their own home.
- Changing owners later costs money. A buyout normally means refinancing, with legal fees and possibly a penalty.
Some groups have each owner borrow against their own home and buy the cottage without a shared mortgage. That keeps the debts separate. Start with our cottage financing guide and the calculators.
Passing the cottage to the next generation
Many family cottages are bought with the hope that the children will have it one day. Tax often catches families off guard.
Canada has no inheritance tax as such. Instead, the Canada Revenue Agency treats a person who dies as having sold all their capital property at fair market value just before death. This is called a deemed disposition. If the cottage has gone up in value since it was bought, the gain is reported on the final tax return, even though nothing was sold and no cash came in. One half of a capital gain is currently included in income.
A few rules can soften or delay this.
- Spouse or common-law partner. When property passes to a surviving spouse or partner, the gain can generally be deferred until that person sells or dies.
- Principal residence exemption. A cottage can qualify, even if it is only used seasonally. A family can only name one property as its principal residence for any given year, so using the exemption on the cottage means not using it on the house for those years.
- Giving it away while you are alive does not avoid the tax. A gift or cheap sale to a child is generally treated as a sale at fair market value on that day.
Families use different tools to plan for the bill, including life insurance, trusts and gradual transfers. Each has costs and tax effects of its own. Keep records of what you paid and every capital improvement, since those raise your cost and lower the gain.
Ask the children whether they want to share a cottage. Leaving one property to three adults is a co-ownership, and it needs its own agreement.
Before you sign
- Agree on budget, region and use. Our buyers guide can help.
- Choose how title will be held.
- Have the co-ownership agreement drafted and signed before closing.
- Get mortgage pre-approval for the whole group.
- Update each owner’s will.
This article is general information, not legal or tax advice. Tax rules change and every family is different. See a lawyer and an accountant before you buy together or plan a transfer.