Cottage succession planning

Aug 19, 2021 | Elizabeth de Groot


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Whether you call it a cottage, chalet, camp or cabin, it’s your family’s special place to relax and enjoy the great outdoors.  For many families, it’s a place filled with generations of memories. Keeping the cottage in the family from one generation to the next isn’t always as easy as it might seem. There are many issues to consider, including how the taxes will be paid. 

Capital gains taxes

If your cottage has been in the family for many years, the value has probably increased dramatically.  This increase in value can result in a very large, taxable capital gain, which is triggered when you pass along the property to anyone other than your spouse, including your children.  It is important to track capital expenses throughout your ownership of the cottage as these can be added to increase the adjusted cost base of the cottage, potentially reducing the capital gain. 

When you gift or sell your cottage to anyone other than your spouse (either during your lifetime or at the time of death), the government views it as having been sold at fair market value – a “deemed disposition.” The capital gain on this deemed disposition may be taxable if you are not able to or choose not to claim a principal residence exemption. 

The following illustrates the taxes owed on a cottage property that was purchased by a couple in 2000 and sold to their child in 2021.

Original purchase price of cottage in 2000 = $400,000
Fair market value (FMV) in 2021 = $800,000
Renovations done (capital expense) in 2002 = $50,000
Adjusted cost base (ACB) = $450,000
Capital gains tax = ($800,000-$450,000) x 50% x 46%
Taxes payable (50% inclusion rate and a 46% marginal tax rate) = $80,500

Consider ways to reduce taxes

While taxes are inevitable, proper planning can help reduce the burden.  Here are few cottage succession planning strategies:

  • Cover the tax bill with an insurance policy
  • Gifts before death
  • FMV sale before death
  • Use of family trusts
  • Gifts at death

​​​​​​Every cottage succession plan is as unique as the cottage itself. For further information with respect to your specific situation, contact Elizabeth de Groot of RBC Dominion Securities at elizabeth.degroot@rbc.com or 705-444-4742


This article is supplied by Elizabeth de Groot, CFP, FCSI, CIWM, FMA, Vice-President, Investment & Wealth Advisor with RBC Dominion Securities Inc. Member–Canadian Investor Protection Fund.  This information is not intended as nor does it constitute tax or legal advice. Readers should consult their own lawyer, accountant or other professional advisor when planning to implement a strategy