Profiter d’un chalet est un sport national. S’ils souhaitent léguer le chalet à leurs enfants, les propriétaires doivent toutefois être au courant de l’incidence fiscale. Nicole Ewing de Gestion de patrimoine TD nous explique.
As we just heard from Rob, some haven't been doing much in the past few.
But whether you're selling it on the open market or passing it down to your children, you could be slapped with a big capital gains bill.
So with more on how to reduce the tax bite, we're joined by Nicole Ewing.
She's a Tax and Estate Planner at TD Wealth.
And she joins us from Ottawa.
Nicole, thanks so much for joining us.
I want to start off and just-- My pleasure.
--dive right in here.
Let's say that I'm a very lucky person.
I have lived in a cottage for 30 years.
I've got a whopping big capital gains tax bill that I'm going to have to deal with.
I've decided it's not going to be something I'm passing on-- let's say I don't have kids.
So I have to decide how to manage this.
What do I do?
Well, really there's two considerations.
Do you sell now?
Do you sell later?
If you're looking to sell now, and you have a significant gain, are you going to use this, your principal residence exemption, towards your cottage?
Now if this is the only property you have, that's an easy decision.
Yes, you'll use your principal residence, which is applicable to a cottage.
If you have another property, then that's a bigger decision to make.
Can you explain that a bit?
Because I have heard this before.
So let's say I have a house in a city.
And let's say I'm in Ottawa-- and let's say I'm in Gatineau and I have a cottage there, just to put it where you are.
And I have a choice.
I've lived in both of these homes.
I've had them both, let's say, for 30 years or 20 years.
What do I do?
How do I choose between the principal residence exemption?
How do I choose between where I'm living, let's say, in the city and the cottage?
So you have-- hopefully, you'll have a gain on both properties.
And you're going to be taxed on the difference between the adjusted cost base and the amount that you eventually sell it for.
And you're going to look at-- as long as you've not rented those properties out on a regular basis, if you have used those properties for own your own use and enjoyment, or your spouse has or your children has, throughout that period, you have the option of using the principal residence exemption when you sell the property against either of those properties.
For example, if you purchased the property for $100,000, it's now worth a million, you're going to apply the principal residence exemption against that property.
If there's been no gain, then it's simply a matter of not declaring it on your taxes.
It sounds pretty straightforward.
So you have to basically look to see which one has the largest gain, I'm assuming, and then apply it in that direction.
So as long as you've owned the property or you've owned it jointly with somebody else, if you, your spouse, or your children have used that property regularly, you don't need to be having lived in it continuously throughout that period.
For example, if you're going there for family vacations or for the summer holidays, your principal residence exemption can apply.
So that's enough there if you don't spend all your time there.
I get that one.
Now let's go into a little more complexity.
Let's say that I've decided-- or the kids, let's say they want the college.
Because that's not always the case.
I think people make an assumption they do, and that's not always the case.
But let's say they do want the cottage.
How do I manage that?
Who pays it and how do I minimize it?
Well, so if your children want the property, then the real question is, are you going to transfer that to them now, or are you going to transfer that to them at some point in the future, or some point in-between?
If you want to transfer it to them now, there's going to be an immediate tax liability, whether or not you're gifting it to them or you're selling it to them.
You will have disposed of that property, so there's going to be a tax bill to pay.
And you need to look at how you're going to pay that tax bill.
Do you have other assets that you can liquidate in order to pay it?
Or are you going to transfer that property to them at some point in the future?
And again, how is that tax bill going to be paid?
You can discuss with them various options.
The key is if they want that property, they're going to own it, perhaps with their siblings.
There's going to be other issues that arise in addition to tax.
I understand that one of the things you have to be really careful of is gifting the cottage.
And I've heard some people are like, oh, I'm going to sell it to them for $1 and then have that be-- Yes.
So just play that out for me.
What happens if you do something like that?
So it's really best not to be cute when it comes to the CRA and disposing of property for less than fair market value.
So when you sell your property for less than fair market value to somebody who's not arm's length with you, then you will be deemed to have sold it for fair market value.
And you're going to pay tax on the difference between your cost base and the fair market value, regardless of what you actually sold it to them for.
But your child, when they go to sell the property, they're not going to get that bumped-up ACB.
They're going to have the actual amount that they paid as their ACB.
And they'll be paying tax, again, at the fair market value they sell it for.
So essentially, what's happening is you have both parent and child paying tax on the same accrued value.
Where, had you just sold it for a fair market value, you would have been fine.
Had you gifted it for nothing, only the child would have taken the parent's increased ACB at the time.
It's a nightmare.
Yeah, it is.
It's great advice and a great warning, I think, for people.
And I think it's good advice never to be cute with a CRA.
Nicole, thanks so much for joining us.
She's a Tax and Estate Planner at TD Wealth and she joined us from Ottawa.