The soaring property prices in Australia are posing challenges for aspiring property owners, both as owner-occupiers and investors. However, property co-ownership offers a compelling solution. By pooling financial resources and leveraging combined borrowing power, co-ownership dramatically lowers costs and increases affordability. It enables the average Australian to progress on the property ladder. So, what involves joint tenants and tenants in common in Australia?
Property Co-Ownership in Australia
When individuals purchase a property together, there are two common ways to structure the ownership agreement. It is essential to understand the implications of these terms.
In Australia, co-ownership is widespread. It involves purchasing a property with one or more individuals. The legal structure of this ownership agreement has significant consequences in various areas. These areas are taxation and the asset distribution among surviving co-owners in the event of the passing of one owner. Everything is according to the Australian Taxation Office.
In Australia, property co-ownership primarily takes two forms: tenancy in common and joint tenancy.
Tenancy in Common
Tenancy in common refers to a co-ownership arrangement where each owner has a distinct and separate share of the property. If one co-owner passes away, their share of the property is transferred to their estate. Everything is distributed according to their will or applicable laws.
Tenants in common refer to a property co-ownership structure that we establish with a legal professional’s assistance. When considering individuals as “tenants in common” of a property, it means that if one of the owners passes away, the estate will inherit its share of the co-owned asset and distribute it to the beneficiaries of that estate.
The ownership shares among co-owners can be equal or unequal. It is important not to confuse this term with “co-tenants.” Co-tenants are a group of individuals renting a property rather than owning it.
In the case of tenants in common, if one of the co-owners passes away, their share of the property is considered an asset of their deceased estate. This means that the claim can only be transferred to a beneficiary of the estate or be sold or managed by the estate’s legal personal representative.
Joint Tenancy
Joint tenancy involves co-owners collectively owning the entire property with equal, undivided interest. In the event of a co-owners death, their share automatically passes to the surviving co-owners, and the property does not become part of the deceased owner’s estate. This concept is known as the right of survivorship, and we do not consider the property is part of the deceased co-owners estate.
If joint tenants hold the property and one of the joint tenants dies, their interest in the property automatically passes to the surviving joint tenants. It is important to note that the deceased individual’s share is not part of their deceased estate but instead seamlessly transfers to the remaining co-owners.
Both “tenants in common” and “joint tenants” co-ownership structures have potential tax and legal implications, as highlighted by the ATO. Seeking professional advice, such as consulting a financial adviser, can be a prudent step in navigating these co-ownership arrangements.
