Should we transfer ownership of our cottage while property values are low?

The market value of cottages in my area seems to be going down. Would this be a good time to transfer ownership of the cottage to our kids, to reduce the capital gains tax?—Nicoletta Ivy, via e-mail

Hey, smart thinking! Potentially, yes. If you transfer ownership to the kids now (by selling it to them or giving it as a gift), “the transfer will trigger an immediate capital gain, but the property will be valued at the current reduced market level, which could save a significant amount of tax,” says Amanda Fournier of Investors Group in Barrie.

Of course, you have no way of knowing for sure that the market value of the cottages in your area will increase in the future and not drop further. “The premise of this plan is that the current capital gains tax on the transfer of the cottage to the kids will be less than the future capital gains tax when the parents die, and that’s not guaranteed,” says Karen Slezak, a partner with chartered accounting firm Soberman in Toronto. She points out that another financial consideration is whether the money paid out through triggering the capital gains tax now would actually be worth more in the future if it were invested.

Don’t forget the non-tax considerations. If the cottage is transferred to the kids, do they make the decisions about repairs and renos? Who pays for the firewood and insurance? Also, do all the kids even want the cottage, or would they prefer a payout from the estate? “There’s no one-size-fits-all answer,” says Slezak. “It depends on the situation.”