Can you transfer a cottage to your adult child over a number of years? Say 20 per cent each year for five years so as to spread the tax hit? If so, must you obtain an appraisal for each of the five years?
—Lou Iacovino, via email
Answer to the first question: absolutely! Answer to the second question: not necessarily.
“Yes, a cottager can transition the cottage over five years, whether in equal 20 per cent stages, or, for example, 30 per cent the first year, 10 per cent the next year, 20 per cent the third year etc.,” says Peter Lillico, a lawyer at Lillico Bazuk Galloway Halka in Peterborough, Ont., and our favourite succession expert. You will have to pay for multiple appraisals, “but if you’re clever, you can do only three of them, not five,” he says. Here’s what he suggests: get the cottage appraised in the fall, then consult your accountant. An accountant can determine the right percentage for the first transition, for example, 20 per cent versus 24 per cent. That extra four per cent could put you into a higher tax bracket or increase your Old Age Security clawback, says Lillico; you probably want to avoid that. Your accountant may also be able to estimate the best percentage for your next transfer.
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All that sorted, begin the transfer process in, for example, December 2026. Then, within six months of the fall appraisal date, register the second transfer, says Lillico. Why within six months? “CRA considers appraisals that are older than six months to no longer represent current fair market value,” he says. So, this strategy lets you accomplish two transfers—say, 40 per cent of the cottage—using only one appraisal. (Bear in mind that, depending on where you live in Canada and how you’re transferring the cottage—gifting versus selling—you might still need to pay the Land Transfer Tax on the two property deed transfers.)
You could do the second transfer in January 2027. “Then, in fall 2028, repeat the same process of appraisal,” says Lillico. Transfer another chunk of the cottage in December, and another in January of 2029. “Finally, in fall 2029, do one more appraisal, with the final per cent of the transfer registered in January 2030.”
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And…you’re done. Whoo-hoo! You’ve transferred the cottage in five stages, within the five-year time limit, while only having to pay for three appraisals.
“Neat, right?” says Lillico. “And although there are offsetting transactional costs with this ‘staged transition’ strategy—five deeds, three appraisals—it’s typical that the tax savings are much greater than the additional transactional expenses.”
Got a question for Cottage Q&A? Send it to answers@cottagelife.com.
This article was originally published in the Early Spring issue of Cottage Life.
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