Financial Perspective – Leaving the cottage to the kids: a gift that could be costly
A second home is often associated with priceless family memories. What could be more natural than wanting to leave it to the children when you pass away? Be careful, though: some planning is required… especially in the wake of the federal budget tabled in April 2024.
The budget tabled by the federal government last April made plenty of people who own second homes realize that their property came with what could be a substantial tax bill. In fact, for tax purposes, a second home is treated differently than a principal residence, and this can complicate a number of issues, especially when it comes to handing it over to the children.
What is involved, and what has changed since the last budget?
A five-point explanation.
1. Why is there tax on a second home?
For tax purposes, a second home, whether a family cottage, country house or ski-slope condo, is treated in the same way as an income property or a mutual fund* investment. It’s an investment that could be sold at a profit, and this profit – known as a “capital gain” – is taxable. Thus, a second home does not have the same status as your principal residence, which is tax-exempt.