Your cottage is an amazing place where some of your family\u2019s best memories were made. If you\u2019re starting to think of your retirement, getting older, or you just don\u2019t want the work that comes with owning a cottage, you may be contemplating your options to pass it down and keep it in the family for generations to come. There is no single solution to transfer your cottage ownership; it all depends on you, your financial situation and your family\u2019s needs and wants. Let\u2019s look at some key pieces of information that will help you make a more informed decision: <\/p>\n\n\n\n
What does your family want? <\/strong><\/p>\n\n\n\n Do your kids and\/or grandkids want to own and manage the cottage? They may be great guests, but do they understand what\u2019s involved with the upkeep, bills and by-laws? The only way to find out is to have a talk, explain your goals, and go from there. You may discover that they aren\u2019t as keen on keeping it as you thought. If that\u2019s the case, you can sell it now or you can continue to enjoy it, maybe rent it out, or revisit your options in a few years.<\/p>\n\n\n\n Capital gains taxes<\/strong><\/p>\n\n\n\n The transfer or sale of a second or vacation property means that capital gains taxes must be paid if it has increased in value since your purchase, which is the most likely scenario. In Parry Sound and Muskoka, there are very few cottage properties that haven\u2019t seen profits (often massive ones) over the past few decades. The capital gains tax is the tax portion on the difference between the purchase price and current market value, minus any upgrades you\u2019ve made to the property. These tax amounts can vary widely but typically range between $50,000 – $200,000 and up. <\/p>\n\n\n\n Researching your options <\/strong><\/p>\n\n\n\n If everyone\u2019s on board to keep the family cottage, it\u2019s important to know your options and the financial\/tax implications. While it\u2019s not possible to completely avoid paying capital gains taxes on the property sale or transfer (either now or in the future), there are a few ways to reduce or delay the hefty tax bill. For example, you can make your cottage your principal residence (but then your primary family residence will be subject to capital gains taxes, so you\u2019d want to choose the lesser amount of the two). <\/p>\n\n\n\n Another option is to legally transfer the cottage to your children now and either pay the taxes yourself or come up with a financial plan for them to chip in and contribute. You can also consider the \u201ccapital gains reserve\u201d, which lets you extend the reporting period for up to five years (and save a bit of money during that time). This is only allowed if the cottage has been sold and not gifted, and other regulations apply as well. <\/p>\n\n\n\n You can also decide to stick with the status quo, meaning the cottage stays in your name and when you pass away, it can be left to your family to decide then if they wish to keep it or sell it and disperse the profits. Keep in mind that it\u2019s important to update your will regularly to reflect any changes to your family\u2019s situation and dynamics. For example, if you\u2019ve named a son-in-law or daughter-in-law or step children in your will, but they are no longer in your family\u2019s life, you\u2019ll need to update your will to reflect those changes or your cottage ownership may end up in the wrong hands or tied up in the courts long after you pass away. <\/p>\n\n\n\n