What's Up Dock: Tax & Estate Planning for Your Vacation Property.pdf
CIBC offers expert tax and estate planning advice for cottage owners and
TORONTO, May 15, 2014 /CNW/ - With this Victoria Day weekend marking the
official start of the summer cottage season in Canada, a CIBC (TSX: CM) (NYSE: CM) report says that in addition to their spring
cleaning, Canadians need to tackle tax and estate planning issues or
risk turning their idyllic retreat into a potential financial hornet's
"The biggest tax problem with vacation properties, such as a cottage, is
the potential for large capital gains tax if the property is sold,
gifted to family members, or held upon the owner's death," says Jamie
Golombek, Managing Director of Tax and Estate Planning, CIBC. "Poor
planning could cost you or your heirs a lot of money and, in some
cases, force the sale of a cottage that has been in the family for
In his recently updated report, What's Up Dock: Tax & Estate Planning for Your Vacation Property, Mr. Golombek offers several potential solutions and strategies for
individuals to discuss with their financial advisor, including:
Improvements and renovations - It's important to keep receipts for any improvements or renovations
made to the property, as these expenditures can be added to the
property's adjusted cost base, thereby reducing the amount of capital
gains tax payable upon sale, gift or death.
Principal Residence Exemption - The principal residence exemption ("PRE") can shelter the gain on a
principal residence from capital gains tax. Although a couple can only
designate one property as their principal residence during any given
calendar year, the property does not have to be located in Canada to
qualify, as long as the individual who claims the PRE is a resident of
Canada. Even if you occasionally rent the property, a cottage can still
qualify as a principal residence.
Trusts - Trusts are commonly used to hold or purchase a vacation property
because they prevent the 'deemed disposition' of a property upon death,
potentially deferring capital gains tax until the trust's beneficiaries
- generally the children - sell or gift the property. It should be noted that transferring a property into a trust triggers
immediate capital gains tax if applicable.
PRE and trusts - The beneficiary of a family trust who receives a vacation property
from the trust is deemed to have owned that property from the date the
trust acquired it. This allows the beneficiary to use the PRE to
shelter the gain from the date of original purchase or transfer into
the trust - assuming the beneficiary didn't own another principal
residence during the same period.
Gifting - Parents may wish to give a vacation property to adult children while
the parents are still alive - even if they plan to enjoy it for many
more years. While the parents will need to pay up now for the capital
gains tax accrued to date, future capital gains will accrue to the
children, who may be able to use their own PRE to avoid taxation.
Life insurance - You can purchase a permanent life insurance policy to offset a
property's tax liability upon death. Even in provinces with relatively
low tax rates, the cost of insurance often compares favourably to the
cost of paying the capital gains tax upon disposition, even if that's
many years away.
To read Mr. Golombek's tax-planning reports, please visit: www.cibc.com/ca/advice-centre.
All tax and estate-planning strategies have pros and cons and may be
complicated to implement. It is important to consult a qualified
accountant or tax lawyer on all tax or estate-planning matters.
CIBC is a leading North American financial institution with nearly 11
million personal banking and business clients. CIBC offers a full range
of products and services through its comprehensive electronic banking
network, branches and offices across Canada, and has offices in the
United States and around the world. You can find other news releases
and information about CIBC in our Media Centre on our corporate website
PDF available at: http://stream1.newswire.ca/media/2014/05/15/20140515_C8555_DOC_EN_40355.pdf
SOURCE: Canadian Imperial Bank of Commerce
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Caroline Van Hasselt, Director, External Communications, 416-784-6699 or firstname.lastname@example.org