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How can I lower the tax bill when transferring the cottage?

Dear Nancy Woods,

I have a cottage that I have owned for a long time and it has gone up significantly in value. I'm afraid that my estate will suffer greatly to cover the capital gains. My children want to keep the cottage and will equally share it. It's not in perfect condition, so it's unbelievable that it is worth so much. It is in a prime location on the water. Is there a way we can prepare for the tax bill? Signed, Anita

Dear Anita,

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Since your cottage is not your principal residence, you are correct that the gain in value is taxable as a capital gain. If you want to pre-plan for the eventual tax bill, you can do a couple of things. If you have the funds, you can purchase an insurance policy to help cover part of the anticipated tax bill. If you do not have the funds, then you can have a conversation with your children to see if they can fund all or part of it, since offsetting the tax bill is to their benefit.

You can also increase the cost base by making capital improvements to the cottage. Have the energy audit done to see which improvements will provide a government rebate or grant for upgrading the heating system, windows, etc.

I hope that you have kept records of the original purchase price and any associated capital costs. You will need them to calculate your capital costs for future when the title changes.

You can elect to have your cottage as your principal residence if the gain on it is larger than your city property. You are best to seek professional tax advice in that regard to see which results in the lower tax bill.

Nancy Woods, CIM, FCSI, is an associate portfolio manager and investment adviser with RBC Dominion Securities Inc. To ask her a question, send an e-mail to or visit her web site at


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About the Author

Nancy Woods, CIM, FCSI, is an associate portfolio manager and investment adviser with RBC Dominion Securities Inc. More

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