QUESTION

We have a cottage that is presently owned by my mom. The property is her principal residence. I am an only child and the direct benefactor. Is it better to put it in my name now, or are we protected from any taxes after her death?

ANSWER

“There’s a definite advantage to keeping the cottage in Mom’s name,” says Karen Slezak, tax partner at Soberman LLP, a chartered accounting firm in Toronto. Depending on how long it qualified as her principal residence, most or all of the capital gains tax will be eliminated when 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 she dies your mother’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—1.5 per cent of the value of the property. Could this tax turn out to be more than the capital gains tax? Yes, says Slezak. But with the current capital gains tax being around 20 per cent on average, it’s not likely.

* Published in the Summer 2009 issue of Cottage Life