3 ways to pass the family cottage to your kids
There are a few ways to pass down the cottage, but each comes with its own tax considerations.
ESTATE PLANNING
BY mOneytalk staff
June 2025
The family cottage can be a source of endless fun and memories, but choosing how to pass it down can be complicated. If you’ve owned the property for many years, its value has likely risen significantly and created a taxable capital gain. While you may not be able to reduce the tax bill entirely, Nicole Ewing, Principal, Wealth Planning Office, TD Wealth, says careful planning can help influence when and to whom that bill falls.
Consider the financial side
IMAGE: INNA GERTSBERG
Once you have a mission statement you like, you can use it to guide your retirement savings plan. “You don’t have to have all the answers today,” notes Ewing. “We just need to understand the overall direction to enable appropriate planning.”
You can start by determining the appropriate cash flow you'll need in retirement and identify potential risks. If, for example, you plan to spend a lot of time outside of Canada in retirement, you may want to structure your portfolio differently to ensure you’re not exposed to any unnecessary taxes if you need to access your funds while you are in another country.
If you’re managing your own portfolio, you'll want to consider the cost of the lifestyle you’re dreaming of. (And don't forget to factor in inflation.) An advisor can help you run the numbers based on your income, spending and investments to see what’s possible. They may even suggest ideas that you hadn't considered, based off those numbers, including the opportunity to buy a recreational property or leave more money to children and charity than you expected.
“Looking at the numbers can really help that conversation along,” Ewing says. “Often, people are surprised by what’s possible. It can spur some excitement and even take away some of that stress.”
Disclaimer
As important as it is to think about what you want to do in retirement, it's just as important to understand that those plans can change. An injury or health issue that affects you or a loved one, rising inflation or an unexpected expense are just a few of the situations that could impact your plans.
As you approach retirement, Ewing says it's a good idea to continue checking in with your advisor: “We want to make sure that everything is on track, and if it’s not, how do we get back on course?” Doing this with the added benefit of a robust retirement mission statement can help remind you that you’re in a good place.
“It’s exciting to picture and plan what your future will look like and to feel confident that you know how to get there,” she says. “The joy is that it’s deeply personal, and you can define what it means to you.”
Get comfortable with change
Option: Should I sell the cottage to my kids?
The information contained herein has been provided by TD Wealth and is for information purposes only. The information has been drawn from sources believed to be reliable. The information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual's objectives and risk tolerance.
TD Wealth represents the products and services offered by TD Waterhouse Canada Inc., TD Waterhouse Private Investment Counsel Inc., TD Wealth Private Banking (offered by The Toronto-Dominion Bank) and TD Wealth Private Trust (offered by The Canada Trust Company).
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If your children are unable to purchase the property outright, Ewing says you could consider having them pay you over an extended period of time, along with promissory notes to pay the rest. Not only would the payment be more manageable for your kids, but your own annual capital gains can be spread over several years.
Principal, Wealth Planning Office,
TD Wealth
NICOLE EWING
Tax liability is something people tend to forget about, but it can be quite significant.
We spoke to Ewing about three popular ways Canadians can pass their recreational property down to the next generation, and the benefits and disadvantages of each.
If you’d prefer to tackle the capital gains bill now, one option is to sell the cottage to your kids while you’re still alive. Here, Ewing emphasizes the importance of selling it at fair market value, even when the buyer is family. Although it’s natural for owners to want to mitigate the tax, she warns of the complexities involved with trying to unilaterally ease the burden: “If you sell it to your child for less than fair market value, it can incur double taxation.” Not only will you face a capital gains tax on the difference between the property’s fair market value and the lesser sale price, but should your child decide to sell the property again in the future, their capital gains tax will also be calculated using the below-market price you set.
"It depends on what other documents you put in place," says Ewing. While this may initially seem like an easy path forward, she notes that questions about true ownership (and therefore taxation) can arise whenever children are assigned co-ownership. “There are two types of ownership — legal and beneficial — and when you own property with your children, the Canada Revenue Agency's (CRA) presumption is that it was done for convenience purposes only. They're not actually beneficial owners of the property, and upon your death, your children will essentially be holding that property in trust for your estate.” In summary, co-ownership won’t eliminate the capital gains tax.
If beneficial ownership is sought instead, Ewing cautions that this requires additional documentation and surrendering some legal control of the property to your adult children. And giving your kids control can come with unintended consequences. For example, the cottage could become entangled in a divorce settlement, or be the target of creditors.
Option: Can't I just make them co-owners?
A family trust can allow you to pass ownership of the cottage to the trust itself and dictate terms that govern the continued use of the cottage. If you take this route, the Canada Revenue Agency (CRA) regards the property as being sold the moment the property is transferred to the trust. Any subsequent accrued growth in the value of the cottage would then fall to the trust for taxation purposes upon eventual disposition, unless allocated to the trust's beneficiaries. Using a trust can therefore help settle the capital gains tax now, without having to surrender control of the property while you're still alive. Trust rules can be complicated, however, so it's best to speak to a professional first.
Ewing says that issues of taxation and ownership are interwoven when passing a recreational property to the next generation, and the path forward isn't always simple. Working with an advisor can help you create a holistic wealth transfer strategy that benefits everyone in your family.
Option: Do I need a trust?
Once you’ve had your fill of being a tourist or fixing up your home, you’ll need to decide what to do with the rest of your time — and there could be a lot of it. If you’re accustomed to holding down a 9-to-5 job, for instance, you'll need to account for an additional 2,050 hours each year.
So, where to begin?
You may need a retirement mission statement. Just as a company will draft a mission statement to identify the values that drive their business, your mission statement should outline the values that are important to you. Clearly articulated values can help you identify your purpose and direction in retirement. A good mission statement is typically only about one to three sentences long — but even that could take some serious reflection.
“A retirement mission statement can be a bit like the North Star, in that it provides direction and helps people understand what's possible,” says Nicole Ewing, Principal, Wealth Planning Office, TD Wealth. She says she often encounters people who struggle to articulate their expectations of retirement.
Thinking about your post-work life is often critical, not just to your own well-being but to your finances, too. It’s hard to know if you’re saving enough — or too much — without knowing what you are saving for.
“It is not at all unusual for people to realize that they have significantly more resources than they expected,” Ewing says. Translation: Some Canadians might be able to enjoy more of their wealth now, instead of waiting for the future.
If you’d prefer to tackle the capital gains bill now, one option is to sell the cottage to your kids while you’re still alive. Here, Ewing emphasizes the importance of selling it at fair market value, even when the buyer is family. Although it’s natural for owners to want to mitigate the tax, she warns of the complexities involved with trying to unilaterally ease the burden: “If you sell it to your child for less than fair market value, it can incur double taxation.” Not only will you face a capital gains tax on the difference between the property’s fair market value and the lesser sale price, but should your child decide to sell the property again in the future, their capital gains tax will also be calculated using the below-market price you set.
Once you have a mission statement you like, you can use it to guide your retirement savings plan. “You don’t have to have all the answers today,” notes Ewing. “We just need to understand the overall direction to enable appropriate planning.”
You can start by determining the appropriate cash flow you'll need in retirement and identify potential risks. If, for example, you plan to spend a lot of time outside of Canada in retirement, you may want to structure your portfolio differently to ensure you’re not exposed to any unnecessary taxes if you need to access your funds while you are in another country.
If you’re managing your own portfolio, you'll want to consider the cost of the lifestyle you’re dreaming of. (And don't forget to factor in inflation.) An advisor can help you run the numbers based on your income, spending and investments to see what’s possible. They may even suggest ideas that you hadn't considered, based off those numbers, including the opportunity to buy a recreational property or leave more money to children and charity than you expected.
“Looking at the numbers can really help that conversation along,” Ewing says. “Often, people are surprised by what’s possible. It can spur some excitement and even take away some of that stress.”
Consider the financial side