Joint Tenancy and s. 116 ITA Holdback




I have a question about Holdbacks until a clearance certificate is provided.

A townhouse is owned by three people… a brother, a sister and her husband. It is registered as Joint Tenancy. Throughout the ownership, they have considered that the brother owns 50% and the sister and her husband own 50%. The brother is Canadian, the sister and her husband are Americans. There is a holdback of 25% needed because the Americans do not have their clearance certificate yet.

Of the total sale, should the holdback be 25% of 66% based on the joint tenancy? Or 25% of 50% based on what they consider the ownership to be. They can produce tax returns but nothing that specifically officially shows the 50 percent ownership.


The question seems simple enough. Let me put my “CRA hat” (Canada Revenue Agency) on for the moment. Brother dies, then Sister dies, all before closing. That means that the Husband who owns the entire property lives in the United States and is subject to a 25% holdback based on the entire purchase price. That’s based upon the manner in which this deal was structured. That’s what I think CRA would propose.

Consider a slightly different approach, three separate and distinct agreements each conveying their respective shares to the Buyer. This results in a severance of the Joint Tenancy and there would then be a 25% holdback for the Sister’s share and a 25% holdback for the Husband’s share.

However, there is likely a problem with the question. Joint interests need to be equal, as in 1/3, 1/3, 1/3. It cannot be 50%, 25%, 25%. It could be Tenants in common as between the Brother and the Couple (Sister and Husband together). Then, inside the Couple’s 50% share, it could be Joint Tenancy. That would make some sense.

Until we know the true facts, we really can’t answer this question. The issue is really one to be resolved by the Sellers and not the Buyer.

What the Sellers really need to do is obtain a “Clearance Certificate” from CRA, and then, everyone is protected.

Brian Madigan LL.B., Broker

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