Protecting benefactors from cottage taxes
Should a cottage be kept in a parent’s name when used as a principal residence? Will benefactors be protected from taxes when their parent dies?
There’s a definite advantage to keeping the cottage in a parent’s name. Depending on how long it qualified as a principal residence, most or all of the capital gains tax will be eliminated when he or she dies. If you put the cottage in your name now, and you already own a house, you can only claim one property as a principal residence; the other will be eligible to attract capital gains tax. Keep in mind, though, that after death a parent’s will could require probating (a common process in which the Court must approve the will and other documents as legally valid), which means the cottage might be subjected to an estate administration tax. Could this tax turn out to be more than the capital gains tax? Yes, but it’s not likely.