Real Estate Joint Ventures

One of the first decisions that needs to be made when two or more persons join together to develop some real estate is: which joint venture vehicle should be used?

Co-ownership and partnership (general or limited) are the most popular choices. Alternatives such as a trust may also make sense in some circumstances. Each offers different advantages and disadvantages. Income tax and liability issues often dominate.


Why not a corporation? This is the simplest, though least popular option. Here, the corporation itself is the owner of the real property. The joint venture participants hold their interest as shareholders of the corporation. The corporation, rather than shareholders, owns the real property and carries on the business. The biggest advantage is that the corporations have limited liability. In addition, corporations are relatively straight-forward, given that they are governed by a statute which sets out rules on everything from organizing to dissolving it.

However, the disadvantages usually rule out a corporation. There can be taxation on essentially the same profits at the corporate level and again at the shareholder level. Losses and profits as between the corporation and the shareholder respectively cannot be offset against one another. Similarly, capital cost allowances (depreciation) are taken at the corporate level and cannot offset income of the shareholder. Unless a tax-free rollover is available and used, tax may be triggered on the contribution from a shareholder of the real property to the corporation. Lastly, the shareholders agreement will usually need to be entered into anyway, similar to a co-ownership or partnership agreement.


A very popular joint venture vehicle is co-ownership. Although each co-owner (aka co-tenant) may have a different percentage interest, each is entitled to an undivided interest in the whole. There are many advantages to using co-ownership, including that each co-owner:  owns its own interest in the land;  receives its own share of the profits and losses; decides its own capital cost allowances; and can sell, mortgage or otherwise separately deal with its interest (subject to such restrictions as agreed to between the co-owners).


A partnership is not a separate legal entity, but is a relationship that exists between the parties who carry on business in common with a view to profit. Unlike a co-tenancy, the partners’ interest is not held directly, but rather through the partnership. Partners share in the profits, losses and net proceeds on dissolution. If all of the partners are residents of Canada for purposes of the Income Tax Act (Canada), certain rollovers are available on the transfer of property to a partnership. This is an advantage over co-ownership where the contributing co-owner has to sell its interest and the receiving co-owner must buy it. The exposure of a partner to liability can be minimized by using a limited partnership rather than a general partnership, i.e., the liability of a limited partner is limited to the extent of its investment in the partnership. However, a limited partner must not take part in the affairs of the business. If it does, it risks losing its limited liability.

A significant disadvantage of a partnership, compared to a co-ownership, is that income and loss are calculated at the partnership level with the result that discretionary deductions in computing income (such as capital cost allowances) must be taken at the partnership level and must be agreed to by the partners.


There are other alternatives for joint venture vehicles, such as a trust. This has been popularized by the use of real estate investment trusts (REITs). Other factors that will also have an impact in determining the best vehicle to use – such as whether the investor is a non-resident or a specialized entity such as a life insurance company, in which case special rules and considerations apply – particularly from a tax point of view.

Whatever the form chosen for a joint venture vehicle, a shareholder, co-ownership or partnership agreement should, and almost always is, entered into.


While different vehicles can get you to the same place, they do so with significantly different tax, liability and other consequences. Care should be taken in choosing the one that make the most sense for you.