General Advice - Page 1/4


Courtesy of


Barristers & Solicitors
163 Hunter Street West
Peterborough, Ontario

The Cottage Conundrum

Most cottagers would love to ensure their children and grandchildren have the opportunity to participate in the pleasures of cottage life.

Increasing demand and rapidly rising waterfront real estate prices mean most children won't be able to buy their own. Finding a way to pass on your cottage may be the only option for future generations to share this extraordinary life experience.

The Cottage Conundrum is that the tax system, financial realities and family dynamics are all critical obstacles to achieving that generous goal.


  1. Parental pressures
  2. Payment of ongoing expenses
  3. Non-income producing asset
  4. Calculating capital gains tax
  5. Funding capital gains tax
  6. Transfer while alive or after death?

Some of these obstacles are financial:
Can the parents afford to preserve the cottage for their lifetimes in order to pass it on to the children? Payment of the ongoing expenses for electricity, municipal taxes, insurance, repairs and maintenance may become onerous for seniors, particularly when the costs keep increasingly annually while their income is fixed. "Locking up" the value of the cottage as non-income producing property also has a detrimental effect on the parents, whose cash flow and ability to meet other financial needs could be much improved if the cottage was sold and the money invested.

Even if the parents are in a position to retain the cottage to pass on to their children, capital gains tax on the transfer to the kids is also a substantial issue. Given the huge increases in value in waterfront property over the decades, the resulting capital gains tax could be tens, even hundreds of thousands of dollars. How will this tax bite be funded - life insurance, savings, sale proceeds of the primary residence, mortgage on the cottage itself?

Since the capital gains tax liability increases with each passing year, there is motivation to transfer during the parents' lifetime at a lower cost. However, to do so will trigger the capital gains tax liability sooner rather than later, when life insurance proceeds are not available, the primary residence is still in use, and savings may be required for future needs. The right solution for one family may be the wrong one for their neighbors.


  1. Choosing children
  2. Compensation questions
  3. Co-ownership concerns
  4. Coping with financial differences

Quite distinct from the financial hurdles are the family challenges. Most motivated families, with the assistance of their professional advisers such as lawyer, accountant and financial adviser, will find a way to overcome the money matters. However, the family issues confronting the cottage succession are equally important. Everyone hopes to keep the cottage in the family, but no one wants to leave a legacy of family strife by doing so.

Does the cottage go to all of the children; or only to those who are interested in the cottage; or those who can afford to maintain it; or those close enough to use it regularly; or those that get along together well?

If the cottage doesn't go to all the children for whatever good and valid reasons, what happens to other child or children? Are they simply left out, with an inheritance of diminished value compared to the others? Can they be compensated in some other way?

If more than one child ends up with the cottage will they work well together, or could differences of opinion become disputes, and the cottage a bone of contention instead of a waterfront paradise?

When cottage costs are confronted, especially large ones, what happens if one of the children is unable to come up with his or her fair share of the expenses? And if he or she can't, what happens to the happy family cottage?