Property Ownership: Joint Tenants Or Tenants In Common

The major difference between joint tenants and tenants in common while buying a property lies in how the ownership is shared between owners. Joint tenants own the property equally, while tenants in common own individual shares of the property.

In joint tenancy, each owner has a 100% stake in the property. If one owner passes away, their ownership is automatically transferred to the surviving tenant(s), a process known as the “right of survivorship.” In contrast, tenants in common own specified shares of the property, and upon death, their share is transferred to whoever is named in their will.

When you buy a property with more than one person, you have to make sure you choose the right property ownership structure. This can prevent legal battles and tax issues that can arise if one owner dies or relinquishes their share.

Joint Tenants Vs Tenants In Common

Which Is Better, Joint Tenants Or Tenants In Common?

If you require assurance that upon the death of one owner, the property automatically passes on to the surviving owners, joint tenancy is the best option. However, if you already own property and need to add a partner to the title, a tenancy in common works better, you can apportion ownership to reflect the equity you’ve built. However, the better option depends on your circumstances.

• Married couples usually choose a joint tenant structure, while new couples often choose a tenant in common structure.
• Siblings and friends generally prefer a tenants in common structure. They usually want their share to be transferred to their heirs, and not the other owners of the property, if they die.
• Business partners, investors and developers typically choose a tenants in common structure, as it provides clarity on how the profits and losses are split and keeps tax affairs more straightforward.

However, there are circumstances where a married couple might buy investment property under a tenants in common structure. For example, this arrangement is useful if one spouse earns a lower income than the other and you need to pay capital gains tax . As CGT is calculated based on your annual income, less tax is payable if the income is calculated on the lower income.

To help you choose the right property ownership structure, let’s go through the benefits and drawbacks of each option.

What Are The Advantages Of Being Tenants In Common?

• Ownership can be apportioned at your discretion. It can be a 50/50 split, 75/25 split or a 99/1 split. For couples with significant income disparity, this can have substantial tax benefits.
• A person’s share becomes a part of their estate when they die, and their will can dictate the transfer of ownership.
• Even if you own a smaller share of the property, you have access to the entire property.
• Since costs of living are high, tenancy in common often makes sense for residential property. The co-owners of the property can share the costs of internet, groceries, repairs and maintenance.

What Are The Disadvantages Of Being Tenants In Common?

• All the owners are equally liable for the debts and property tax
• A person might sell their share to a stranger. It only takes one person to force the sale
• Surviving owners do not automatically get the share of a deceased owner. It will go through probate.

What Are The Advantages Of Being Joint Tenants?

• There is a level of safety in numbers, since joint tenants are all responsible for paying off the mortgage and maintaining the property.
• Since there is a right of survivorship, a surviving co-owner automatically gets the share from the deceased.

What Are The Disadvantages Of Being Joint Tenants?

• If a co-owner suffers from financial issues, then the other owners in the agreement have to make payments on their behalf to prevent default
• Decisions regarding the property must be made with permission from all owners. No one can sell their share without consent from the other owners. Since the right of survivorship means the surviving tenants get the shares, this might lead to legal battles.

Tenants In Common Vs Joint Tenants, Tax Implications

Capital Gains Tax

If you own a property with other people, you need to establish the share and interest of the owners for capital gains tax purposes.

Under tenants in common, the capital gain or loss from the sale of the property is divided according to respective shares in the property. For example, if two friends hold a 65% and 35% interest in the property, the capital gain (or loss) is split 65/35. Under joint tenants, the split would be equal among all owners.

Land Tax

The property ownership structure does not matter. You will be considered joint owners either way and will all be responsible for paying the land tax.

Income Tax

The Australian Tax Office states that the income and expenses for tax purposes are allotted according to the legal interest in the property. Under a joint tenant agreement, each joint owner claims an equal percentage of the total tax reductions. For example, two people would each claim 50%, while four people would each claim 25% of the total tax deductions. Under a tenants in common agreement, deductions and claims are done according to interest in the property.

Are you thinking of buying a home with your partner or friend? Think twice about the property ownership structure. While you might be able to buy a higher-priced property, you have to choose a structure that is right for your goals and financial circumstances. Our mortgage brokers are here to help. Call us on 1300 889 743 or enquire online.