It’s becoming more common for a residential property to have several owners as this can significantly help with financing the purchase. It does, however, raise questions in regard to the bright-line test when acquiring property from co-owners. Here we look at whether the bright-line test applies in the scenario where a part owner of residential land acquires full ownership of the property due to a transfer from their co-owners in the property.
In 2016, Matthew purchased a residential rental property with financial assistance from his parents. The ownership was split equally between the three of them.
Matthew is now in the position of being able to buy out his parents and transfer the property title solely to himself. How is this treated under the bright-line test?
Matthew’s original 1/3 share of the rental property is not affected by the rules, so the bright-line test period that commenced in 2016 does not restart for that 1/3 share. However, the other 2/3 of the property ownership that was his parents’ will be treated as Matthew purchasing it on the date the new title is registered. Therefore, if he sells the property within 10 years of the date of the new title being registered, the bright-line test will apply to 2/3 of the property.
This is also the case where ownership of a property is as joint tenants.
Please contact us if you have questions regarding the bright-line test when acquiring property from co-owners.