Transferring the Cottage to the Next Generation

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There is an interesting article in the July issue of TaxMatters@EY (from Ernst & Young), including information about transferring the cottage to the next generation.

From the July Issue:

… A gift of property to a child is considered to be a fair market value disposition. And, although gains on the disposition of personal property are taxable, losses are denied. Fortunately, in the case of a cottage, some or all of the accrued gain can be sheltered from tax using the principal residence exemption – by designating the cottage as a principal residence for a selected number of years of ownership and occupation. Seasonal occupation is sufficient for a property to be considered a principal residence.

Sound interesting! See the calculations on their newsletter!

From the Email Newsletter:

Recap of the E&Y Newsletter…

* examines tax issues surrounding the transfer of a family vacation property to the next generation
* recent changes by the CRA around online university courses that have made a positive impact on this ever-growing trend of distance education in Canada.. and
* a recent Supreme Court of Canada decision on joint investment accounts

See the E&Y Newsletter online

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Update:

About the Principal residence Exemption .. read Neil McIntyre’s 8 quick facts about the principal residence exemption

Comments

Interesting, but then you’d be giving up the principal residence exemption on your actual principal residence. It all boils down to which property is appreciating faster. It may not be the same everywhere, but I would guess if you own a house in Toronto and a cottage in Muskoka, the house is going up in value faster. Optimizing the exemption based on the average gain per year of ownership per property is key.

Thanks Neil for that point. As I mentioned above, it is an interesting article .. but as you say, may not be as practical.

PS I updated the article to include your link to give you some google juice .. as, I believe the no-follow rule in my comments is in play.. 🙂

Hope you had a great summer!

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