Which suffers more death duties: Joint Tenancy or Tenants in Common?

What is the difference between joint tenancy and tenancy in common?

• Tenants in common: each owner holds their share of the asset outright. It can be 20% and 80%. Or it can be 50% and 50%. Or it can be 34%, 6% and 60%. However, it must equal 100% when a tenant in common dies; your interest in the asset then goes into your Will. It does not go to the other co-owners.
• Joint tenancy: the owners share equal ownership of the asset. It is an 'undivided interest'. Each owner owns the whole asset. Therefore, if there are two owners, they must hold the property in equal shares (50/50). If there are three owners, then each must have a third. If their interests are unequal, then you do not have a joint tenancy. (You would have a Tenancy in Common, instead.) Together, all owners own 100%. There are no separate interests. At death, the remaining owners automatically take the deceased owner's interest.

In other words, dead people cannot put the joint tenancy asset into their Will. The Will maker cannot pass their share of the asset under their Will. This is because it automatically passes to the remaining owners. The last owner to die takes the entire asset.

ATO treats joint tenancy assets as tenants in common

Under section 108-7 of the Income Tax Assessment Act 1997, individuals who own a CGT asset as joint tenants are treated as if they each owned a separate CGT asset constituted by an equal interest in the asset and as if each of them held that interest as a tenant in common.

This has adverse tax consequences.

Someone gifts an asset to two people; now what? The Joint Tenancy presumption

Someone gives you and your brother a gift of land. It is 50/50. You die the next day. Does your 50% interest go into your Will? Or does it, via the joint tenancy survivorship rules, go to your brother?

At law, there is a presumption that, where property is gifted to two or more people, they take the property as joint tenants. This is subject to any contrary intention.

• Some States' legislation confirms this outcome. This includes Victoria, Western Australia and South Australia.
  • For our example, in Vic, WA and SA, your land does not go into your Will. It goes to your brother.
• But New South Wales and Queensland's legislation creates the opposite position. This means that, in those jurisdictions, real property gifted to two or more people is deemed to pass to the parties as tenants in common, in equal shares.
  • So, in our example, in NSW and QLD, the land goes into your Will. Your brother has no interest in your 50% interest in the land.

Joint tenancy is bad for CGT assets. Tenants in common are often better

QUESTION: Why do you not like assets held as joint tenants? As an accountant, I estimate that 80% of my clients own real estate as joint tenants.

ANSWER: Back before 1980, Death and Probate Duties existed. At that time, couples often held assets as Joint Tenants. This meant that when one person died, the survivor got the real estate, irrespective of what the Will said. The Joint Tenancy property didn’t go into the Will, so probate duties were avoided on that real estate.

Death and Probate Duties were abolished in all Australian jurisdictions by 1981. In 1985, Treasurer Paul Keating introduced the Capital Gains Tax (CGT). CGT works very differently from Death and Probate Duties.

For example, the CGT regime does not recognise Joint Tenancy. For CGT purposes, it treats all property as though it were held as Tenants in Common. If you own property as Tenants in Common (instead of as Joint Tenants) then when you die your interest in the Real Estate doesn’t go to the survivor. It goes into your Estate. This has additional benefits, particularly if your Will has been drafted with tax-effective 3-Generation Testamentary Trusts.

Joint tenancy and Centrelink deprivation

Joint tenancy can also undermine careful Centrelink planning when one of the couple dies. A 3-Generation Testamentary Trust in your Will is a better, more flexible approach.

CGT punishes joint tenancy

From a tax point of view (only), holding any asset in Joint Tenancy is old-fashioned and dangerous – this is particularly the case for investment real estate. It is best to hold all investment real estate as Tenants in Common. We only practise in tax. Accountants and advisers look at more than just your tax position. (For example, if someone were to challenge your Will, then joint tenancy may be better.)

It is generally prudent to own investment properties (properties you may rent out, rather than your family home) as Tenants in Common. The cost to sever a Joint Tenancy is not usually high. There are generally no CGT or stamp duty consequences. Your local lawyer or conveyancer can usually do this for you if you do not want to do it yourself.

For most family homes, it probably does not matter. This is because most, but not all, family homes are CGT-exempt. Check with your Accountant and Adviser.

From a tax perspective, is it ok for us to own our home as joint tenants?

We do not know your circumstances, so we cannot answer that question. You should consult with your accountant, lawyer and financial planner. For example, if you are following the classic asset protection strategy of 'man or straw' and 'woman of substance', then the husband should have no assets in his name. (Apologies for the sexist language.) Therefore, the home should be in your wife's name only. (But that is asset protection. You are only asking about tax.)

However, you are correct. Generally, not always, the family home is exempt from Capital Gains Tax. So when you die, your spouse inherits the home. Your spouse can then sell the home tax-free. For example:

• Mavis and John buy a home for $2.8m as joint tenants.
• They live together in their home as their principal residence.
• John leaves everything in his Will to his mistress, Muriel.
• John dies. At the date of his death, the home was worth $5m.
• Because the home is owned as joint tenants (not tenants in common), John's 50% interest in the property goes directly to his wife, Mavis. In joint tenancy, the asset bypasses the Will and transfers immediately to the surviving owner. It's like in Monopoly when you draw the Go to Jail card. (Do not worry, John had a bank account solely in his name with $3m, so his mistress does not miss out.)
• Mavis sells the home within two years for $5m and puts the full $5m in her purse. There was no Capital Gains Tax.

Should we transfer a non-family home out of joint tenancy to tenants in common?

We do not know your individual circumstances. Speak to your accountant and financial planner. However, from a tax perspective, getting the non-family home property out of joint tenancy and into tenants in common may be worthwhile. This may help the 3-Generation Testamentary Trust Will reduce the Capital Gains Tax on the deceased person's 50%. For example:

• Kevin and Joanne buy a residential property as a joint tenancy for $3m.
• The real estate agent ticked the joint tenancy box on the contract. So, Kevin and Joanne are unaware of how they own the property. (Very sad.)
• They do not live in the property. Therefore, it is not their principal place of residence. Therefore, it is subject to Capital Gains Tax when sold or transferred.
• Kevin dies. At the time, the property is worth $6m.
• The Will does not affect this outcome. The 50% interest in the property goes directly to Joanne. What is in the Will is irrelevant.
• Joanne sells the property for $6m. She pays Capital Gains Tax on the full $3m of capital gain when she lodges her personal tax return for that financial year. (Very sad.)

Example of real estate owned as tenants in common with a 3-Generation Testamentary Trust

Consider:

• Kevin and Joanne buy a second residential property for $4m as an investment. (I.e. they do not live in the property.)
• They first speak with their accountant and financial planner. They recommend holding the property as tenants in common to reduce the eventual Capital Gains Tax burden.
• They do not live in the property. Therefore, it is not their principal place of residence. Therefore, it is subject to Capital Gains Tax when sold or transferred.
• Kevin dies. At the time of this death, the property is worth $8m.
• Kevin's 3-Generation Testamentary Trust Will leaves everything to his wife, Joanne.
• The accountant and financial planner placed this 50% interest in the property into one of the 3-Generation Testamentary Trusts in Kevin's Will (the Will allows Joanne to set up as many testamentary trusts as she wishes).
• Upon Kevin's death, Joanne sells the property for $8m
  • Joanne's 50% of the property, which is worth $4m. She has made a capital Gain of $2m. Joanne pays Capital Gains Tax on that $2m.
  • But here is the good news: Kevin's 50% is also worth $4m with a capital gain of $2m. However, Joanne has four great-grandchildren: one just born and the other three still in primary school. Joanne uses all four as the tax entities. No Capital Gains Tax is payable on the $2m profit. Joanne puts the full $4m in her purse.

CGT and Joint Tenancy

For all other real estate, you suffer Capital Gains Tax. Therefore:

1. sever the joint tenancy
2. build a Will containing a 3-Generation Testamentary Trust
3. when you die, your half of the property goes into the 3-Generation Testamentary Trust
4. you will pay no or much less CGT when you come to sell half of the property

If you decide to purchase any real estate in the future, then you are welcome to ring me, or any of the solicitors at this firm, to discuss whether your client should purchase that property as Tenants in Common or Joint Tenants.

See here for joint tenancy and bankruptcy.

Can you die at the same time as your spouse?

If I die first, my joint tenancy asset goes to the survivor. This is my spouse. Or if my spouse dies first, I get my spouse's interest in the joint tenancy asset.

But what if we both die at the same time? For example, in a car accident or from an aeroplane crash. And it is not possible to determine the order of death.

In Australia, generally, the oldest person dies first. The order of death is from oldest to youngest. The oldest person is deemed to die a second before the younger person.

This means the youngest person gets the asset in the joint tenancy.

See Re Comfort; Re Tinkler; Equity Trustees Executors & Agency Co Ltd v Cameron [1947] VLR 237.

The exception to the 'oldest is deemed to die first' rule in South Australia.

South Australian law is silent on who dies first. No South Australian legislation addresses this issue.

In South Australia, if you die at the same time, then your joint tenancy is severed just before the moment of your death. Your interest in the asset is governed by your Will. See In the Estate of Graham William Dawson (Deceased) and Teresa Veronica Dawson (Deceased) [2016] SASC 89.

Strangely, South Australian assets owned as joint tenants pass undivided into the two owners' respective estates.

Can companies and trusts own assets as joint tenants?

Yes. Trusts and companies can own assets as joint tenants with other parties.

Equity overrides Joint Tenancy

Equity overrides Joint Tenancy. For example, you are married. You and your younger wife hold a 50% interest each in, say, shares in a listed company. This is as Joint Tenants. But your mum gave you the money to buy half of those shares. A Declaration of Trust proves this.

You and your wife now die at the same time. Sure, the shares get transferred to your wife's estate. But her estate holds your 50% in trust for your mum.

Legally, those 50% of the shares are in your dead wife's estate name. But her estate holds those shares in trust for your mum.

Equity overrides the common law rules of Joint Tenancy.

All trusts rely on equity to enforce trust rights.

Business Partnerships override Joint Tenancy

If the asset is owned as joint tenants but is a partnership asset, then in equity it is usually treated as tenants in common.

If this deeming rule applies, then the death of a partner causes the value of their interest to pass under their Will, and not by survivorship to the other owners.

The Partnership Acts in most states set out these rules. These rules generally state that unless the contrary intention appears, property bought with money belonging to the partnership is deemed bought on account of the partnership and is considered partnership property.

See Spence v FCT [1967] HCA 32:

“It is … a mistake to say she got it simply by virtue of her joint tenancy. The legal estate devolved in accordance with the joint tenancy.

To that extent the maxim which was mentioned – ‘ius accrescendi inter mercatores locum non habet' – does not apply: see Lindley on Partnership, 11th ed. (1951), p. 428.

But it is applicable in equity; partners who hold as joint tenants in law hold beneficially as tenants in common.

That is an old rule. [Lake v. Craddock (1732) 3 P Wms 158; 24 ER 1011]

It is more exactly stated today in terms of the Partnership Acts (the relevant provisions are ss. 30 and 32 in the Western Australian Act) the legal estate devolves according to its nature and tenure but in trust so far as necessary for the persons beneficially interested; and as between partners land which is partnership property is to be treated as personal estate.”

Business ownership often severs joint tenancy

The above "us accrescendi" rule is in Latin. (Many good legal maxims are expressed in Latin.) Where 'merchants' hold any property in joint tenancy, there is no survivorship between them on the death of one. This is for that property. By the seventeenth century, the rule is expressed in the form of the maxim: jus accrescendi inter mercatores locum non habet.

But, again, do not rely on archaic Latin expressions that only Professors in tax law and judges love. Instead, expressly sever any joint tenancy.

Legal Consolidated Partnerships sever 'joint tenancy'

Legal Consolidated Partnership deeds sever 'joint tenancy'.

Can I leave a joint tenancy asset in my Will?

People often try to leave a joint tenancy asset in their Will. The gift fails. However, there is at least one court case, see below, where a gift of joint tenancy property in a Will severed the joint tenancy and made the parties tenants in common.

However, I would not rely on that case.

A Will may sever joint tenancy - Gambacorta v Di Giovanni [2021] NSWSC 61

In Gambacorta v Di Giovanni, the husband and wife had shares and bank accounts together. Shares held with another person, on the face of it, are held as joint tenants. The same applies to joint bank accounts.

The wife dies. The husband reaches out to take the shares and cash from the bank. This is because he is the 'survivor' of the joint assets.

The share registry offices and banks treat the accounts as joint tenancy accounts. Both are ready to hand over the assets to the husband under the 'survivorship rule'.

But hang on a minute.

Their Wills left their joint tenancy shares and bank accounts to other people. The husband wants his half to go to a third party. It is the same for the dead wife. The greedy husband knew what his wife wanted. For he had made his Will at the same time as his wife.

Can making a Will sever a joint tenancy?

The Judge stated:

"The primary question is whether Maria and Giuliano, by their conduct culminating in wills made by each of them on 2 December 2016, severed the joint tenancy in the joint bank accounts and the shares with the effect that, upon Maria’s death:

• half of the funds in the accounts and the shares devolved in accordance with Maria’s will, or
• whether those assets passed to Giuliano by survivorship."

The Court held that when the husband and wife made their Wills, the joint tenancy is 'severed'. Ownership is turned into 'tenants in common'. Equity and fairness prevailed. Assets held as tenants in common go into the Will.

But do not rely on this Court case. The case relates only to New South Wales. Other state courts are not bound to follow this precedent.

Not happy that the 'survivor' gets the joint assets? This includes land, home, shares and bank accounts. Then open a new share account and bank account solely in your own name.  Most importantly, build a Contractual Will Agreement.

Can a statutory Will sever joint tenancy after you lose mental capacity? White v Poynton [No 3]

In Gambacorta v Di Giovanni [2021] NSWSC 61, the husband and wife successfully severed their joint tenancy through their conduct, culminating in their Wills. Their intentions were clear. But do not get too excited. The decision turned on the particular facts.

Now consider White v Poynton [No 3] [2026] VSC 626. Another family. Another joint tenancy. But this time, the daughter was unsuccessful.

The elderly mother owned her home jointly with her son. Under the survivorship rule, when the mother died, the son would automatically own the entire property. The mother's 2021 Will also left her estate to the son. The daughter was not happy. After years of estrangement, she and her mother had reconciled. The daughter argued that her mother now wanted both children to benefit.

But there was a problem. Her mother had lost testamentary capacity.

The daughter went to the Supreme Court of Victoria. She asked the Court to authorise a new Will that would benefit both children. This is called a statutory Will. It allows the Court to authorise a Will for a living person who lacks testamentary capacity. The daughter also wanted the Court to sever the joint tenancy. Otherwise, changing the Will achieved nothing for the house. The son would still take the property automatically when his mother died.

Why did the Supreme Court in White v Poynton refuse to sever the joint tenancy?

The Supreme Court held that the Wills Act 1997 (Vic) did not give the Court power to sever the joint tenancy. Even if the Court had that power, it would not have exercised it.

The daughter also argued that the parties' conduct or communications had already severed the joint tenancy. That argument failed. The Court examined the mother's earlier intentions. When her capacity was not in doubt, she made her 2021 Will benefiting her son. She also transferred the house into their joint names.

The mother's later statements about benefiting her daughter were vague, inconsistent and made during a period of cognitive decline. The Court was not satisfied that the proposed Will reflected what the mother would likely have intended if she had testamentary capacity.

The daughter lost. The Court refused to authorise the proposed statutory Will.

Compare this with Gambacorta. There, the evidence established that the joint owners had severed their joint tenancy. In White, the evidence did not establish severance, and the statutory Will application failed.

The lesson? Do not rely on a judge to fix your estate planning after you lose mental capacity.

If you want your share of a property to pass under your Will, consider holding the property as tenants in common. Speak with your accountant and financial planner before changing ownership. Consider the tax, duty, and asset protection consequences.

Your 3-Generation Testamentary Trust Will then provides protective machinery for the share passing into your estate. This includes Divorce Protection Trusts and Bankruptcy Trusts. These help protect your family's inheritance from relationship breakdowns and creditors.

But get the ownership right first. Even the best Will does not override an existing right of survivorship.

Challenging your Will

Is someone going to challenge your Will? If so, you may want to hold the property as 'joint tenants'. If you die first, the property goes to the survivor. This is automatic. It does not go into your Will. It therefore cannot be challenged through your Will. This is because joint tenancy bypasses the Will because the dead person's asset went straight to the survivor. See also:

Who can challenge a Will? Fireproof your Will with a Considered Person Clause

A married man marries a sex worker

Superannuation and Rights of Survivorship

When paying death benefits from a superannuation fund, the Superannuation Industry (Supervision) Act (SIS Act) and Regulations require that benefits payable on the death of a member are paid to the member's dependents or legal personal representative (estate). (Forget about the 32% payable by adult children on your super, for the moment.)  However, when it comes to simultaneous or concurrent deaths, the superannuation law is silent. The State's laws determine who is deemed to have died first where a couple die simultaneously, or a survivor clause, where assets will go to the spouse if he or she survives the deceased after a period.

Consider the superannuation trust deed. For example, a member may be receiving a pension, and their younger spouse may be nominated to receive a reversionary pension. The member also has a binding death benefit nomination naming children from another relationship to receive the benefit. In this situation, payment of the death benefit may be determined in accordance with the fund's trust deed. In some deeds, the death benefit nomination may take precedence over the pension reversion. However, if it is silent on which takes precedence, the younger spouse would become entitled to the reversionary pension. Any other member benefits would then be distributed under the binding death benefit nomination.