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‘Don’t drag your feet’: Some cottage owners face big decision after budget's tax change


Canadians who own cottages and other recreational properties may be contemplating their options after Tuesday’s federal budget raised the capital gains tax on annual amounts in excess of $250,000.

The changes, which will impose the higher tax rates on gains realized after June 25, could have significant implications for cottage owners, many of whom have seen the value of their properties skyrocket in recent years.

“I’ve had calls, so far just clients trying to get clarification, but there’s going to be people that have decided that the capital gains tax adjustment is the last straw and it’s time to get into the market to sell,” said John Fincham, a realtor at Re/Max Parry Sound Muskoka Realty in Ontario’s cottage country.


“Why wouldn’t … those with secondary properties like cottages strive to sell in the coming months?”

The math on the new changes — which will raise the inclusion rate to two-thirds from 50 per cent on gains above the threshold — suggests selling before the deadline could save a property owner tens of thousands of dollars.

For example, an individual with a capital gain of $1 million who sells before the deadline would only pay tax on half that amount ($500,000). At a tax rate of 50 per cent, the owner’s tax bill would be $250,000.

After the deadline, half of the first $250,000 per cent would be taxable ($125,000) but two-thirds of the remaining $750,000 would face taxation ($500,000) for a total of $625,000 in taxable gains. At a 50 per cent tax rate, this results in $312,500 in taxes, which is about $62,500 more than before the deadline.

Fincham believes the proposed changes will impact not just real estate transactions but also estate planning, affecting how families manage their assets. He anticipates that many properties will be transferred as a result, both through regular market transactions and through private, off-market arrangements within families.

Tina Tehranchian, a certified financial planner and senior wealth advisor at Assante Capital Management Ltd., recommended that individuals who are considering selling a property act sooner rather than later.

“There are families who may be contemplating selling their cottage to the next generation during their lifetime. Don’t drag your feet; execute on those plans, if that’s the plan,” Tehranchian said.

Tehranchian said the higher taxes could have knock-on implications as well.

If, for example, someone has a joint last-to-die life insurance policy to cover the taxes on such a sale, it may no longer be enough to cover the increased amount under the new rules.

“All of the different estate and tax planning strategies that have been put in place need to be reevaluated in light of the changes in the budget,” she said.

Those forced to sell may have another problem on their hands: According to Fincham, the cottage market in Ontario is already saturated with supply.

“We’re looking at well over 700 cottages currently on the market. That’s a significant number,” he said. ”The supply far outweighs the demand, which is already quite weak.”

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