Passing it on – Ensuring a tax-effective transfer of the family cottage

The family cabin is an important part of the legacy for those who wish to leave it for future generations to enjoy. What many don’t realize, however, is that cabins have increased significantly in value, and 50 per cent of this increase could be taxable at death. There are several strategies you can use to help ensure a tax-effective transfer of the family cabin to your heirs.

Many cabin owners want to keep their retreat in the family so their children and grandchildren can continue to enjoy it. The problem is, when they die, assets can be transferred to the spouse tax-free, but a transfer to the children may trigger a capital gains tax that must be paid before they (or other heirs) can enjoy the property. While a principal residence can be sold tax-free, this usually applies to the home and not to the cabin, which means that the transfer of the family cabin to children or grandchildren may not be exempt from tax.

This is a serious concern for many cabin owners today. With the recent real estate boom in Canada, cabins and other vacation properties have increased significantly in value and are now worth substantially more than their purchase price. At death, 50 per cent of this increase in value is subject to taxation. This could trigger a significant capital gains tax liability for your estate.

If you haven’t planned for this tax liability, your estate may be forced to sell the cabin to pay the tax, which means the cabin wouldn’t stay in the family. It’s a tax time bomb that many people are simply unaware of and don’t plan for.

If this applies to you or someone in your family and you would like to learn more about the options available for your family cabin, arrange a time to speak with your advisor.

This article was prepared by the Mutual Fund Advisors of Artbutus Financial Services with Dundee Private Investors Inc., a DundeeWealth Inc. Company. This is not an official publication of Dundee Private Investors Inc. and the views (including any recommendations) expressed in this article are those of the author alone, and they have not been approved by, and are not neccessarily those of Dundee Private Investors Inc.