COTTAGE TAX ISSUES

A few weeks back we talked about how cottages are often subject to capital gains, usually because they are not the primary residence of the people selling it. I am not sure you would be the person who would advise a seller on all tax avoidance options that are available, as that might be a question that would be best asked of their accountant, but in discussions it might help to have some knowledge and background on different ideas. One option your client will consider is moving the cottage into joint ownership, this is simple enough, but it may trigger land transfer tax and may preclude the ability to set up a trust upon the death of one spouse. If the joint ownership is going to be with a child of the owner (often the case) it can be more convenient, but as we have discussed in the past, it opens up the cottage to any disputes from the child’s creditors or any of their marital / divorce property disputes. Another option is a sale to a beneficiary with a take back / vendor’s mortgage against the property.  If this property is sold /transferred to a non-arm’s length person, like a child of the owner, this does trigger capital gains, but it can be spread over 5 years, which can be very helpful. Also, though It’s a bit rare, but if a person thinks their cottage will appreciate faster than their principal residence then they can consider changing their principal residence from the city home to their cottage. Other options exist, like trusts in wills, co-owner agreements, and life insurance set ups, all of which you can list for your clients as issues and solutions to discuss with their tax professional.

**as always, every situation is different and laws can change, if you have doubts, call someone