Summer always has me thinking about cottages. Whether you own one personally, your family has one that’s been around for generations, you have a generous friend who invites you every year, or you simply rent one for a week, cottages are a place where memories are made.
But while summer is a great time to relax and enjoy the lake, it’s also a good opportunity to think about the planning that can help keep those memories going for years to come.
Hi, I’m Chad Butnari, Senior Wealth Advisor with The Andrews Group at CI Assante Wealth Management, and today I’d like to share a few planning tips for anyone who owns a family cottage.
Tip #1 – Keep Track of Capital Improvements
Many people assume that when they eventually sell their cottage, the capital gain is simply the selling price less what they originally paid for it.
While that’s partly true, there’s an important piece that’s often overlooked: capital improvements.
Major improvements that add value to the property—such as an addition, a new roof, a septic system, or significant renovations—can generally be added to your adjusted cost base. A higher adjusted cost base can reduce the taxable capital gain when the property is eventually sold or transferred.
I always recommend keeping a spreadsheet of these improvements and saving supporting receipts. It may not seem important today, but years down the road it can save a significant amount of tax.
Tip #2 – Understand Your Principal Residence Exemption
Many Canadians assume the Principal Residence Exemption only applies to the home they live in year-round.
In reality, a cottage can also qualify in many situations. The challenge is determining which property should be designated for which years to achieve the best overall tax result.
There isn’t a one-size-fits-all answer. The right decision depends on factors such as how much each property has appreciated, how long you’ve owned them, and your overall circumstances.
Before selling or transferring either property, it’s worth speaking with your advisors to determine the most tax-efficient approach.
One final point that’s worth mentioning: there has been a lot of discussion over the past couple of years about proposed changes to the capital gains inclusion rate. While those proposed changes ultimately did not become law, they created a great deal of confusion. As it stands today, the traditional capital gains rules continue to apply. That said, tax rules can and do change over time, making it even more important to review your cottage strategy periodically rather than assuming today’s rules will always remain the same.
Tip #3 – Start the Conversation Early
One of the most common things I hear is:
“I’ll deal with that later.”
Or,
“The kids don’t need to know yet.”
The reality is, none of us knows exactly what the future holds.
Having these conversations early often leads to better decisions. You may discover that one child has no interest in the cottage because they live across the country. Another may have a strong emotional attachment and dream of keeping it in the family.
These conversations don’t need to solve every problem today. They simply help everyone understand expectations and make future planning much easier.
Tip #4 – Think Carefully About Timing
The timing of transferring a cottage can have a significant impact.
Transferring ownership during your lifetime may reduce probate because the cottage may no longer form part of your estate.
On the other hand, transferring it too early may reduce planning opportunities available to you, including the use of the Principal Residence Exemption, and it could expose the property to risks such as family law claims or creditor issues involving your children.
Every family is different, so timing should be part of the overall planning discussion rather than an afterthought.
Tip #5 – Create a Cottage Sharing Agreement
When Mom and Dad own the cottage, decisions are usually straightforward.
Once ownership passes to several children, things often become more complicated.
Questions naturally arise, such as:
- Can the cottage be rented when it’s not being used?
- How will ongoing expenses be shared?
- Who gets which weeks during the summer?
- Can friends or extended family use the property?
- How are disagreements resolved?
- What happens if one sibling wants to sell their share?
These are much easier conversations to have before ownership changes than after.
A well-drafted Cottage Sharing Agreement can establish expectations, reduce conflict, and help preserve family relationships.
Tip #6 – Choose the Right Estate Planning Structure
Finally, make sure your estate plan reflects your goals.
Sometimes the simplest solution is the right one—perhaps leaving the cottage directly to your children through your Will.
In other situations, more sophisticated planning may be appropriate, such as trusts or other ownership structures.
There isn’t a universal solution. The best approach depends on your family, your objectives, and the value of the property.
Working with your lawyer, accountant, and financial advisor can help ensure your plan is both tax-efficient and aligned with your wishes.
Owning a family cottage is about much more than real estate. It’s about preserving memories, traditions, and a place where future generations can gather.
While these conversations aren’t always easy, having a plan in place usually leads to better outcomes and fewer surprises for everyone involved.
I’m Chad Butnari with The Andrews Group at CI Assante Wealth Management.
Thanks for watching. If you have any questions or would like to discuss how these strategies might apply to your own family’s situation, don’t hesitate to reach out. We’d be happy to help.
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