Closing the cottage this weekend? Time to also open the books to
determine what it's worth and any future tax implications
TORONTO, Oct. 8, 2015 /CNW/ - Many Canadians expect to leave vacation
property in their wills but the rapid rise in real estate values could
leave them or their heirs with a major tax bill, says Jamie Golombek,
Managing Director, Tax and Estate Planning, Wealth Advisory Services at
CIBC (TSX: CM) (NYSE: CM).
"If you plan to sell or pass down real estate to the next generation you
may be subject to a host of tax and estate planning issues that could
not only cost you or your heirs a lot of cash, but could even force the
sale of the property," warns Mr. Golombek.
"Advance planning may help to avoid the capital gains tax altogether or
defer paying it as long as possible," he says. His report, "What's up dock? Tax and estate planning for your vacation home," provides guidance on tax efficient ways for Canadians to transfer or
sell vacation properties.
70 per cent of Canadians expecting to leave assets plan to pass down
A CIBC poll found that 70 per cent of those Canadians expecting to leave
assets plan to pass down real estate upon their death. When it comes to
having conversations about transferring wealth, the poll also found
many Canadians had not discussed it with their family or a financial
"The first step to the successful transfer of real estate is to initiate
an open, honest conversation with your family," says Mr. Golombek.
"This is particularly important when planning for the transfer of an
asset such as a home or cottage where children's plans for the future
might not always align with parents' expectations."
Tips on transferring real estate
The key to deciding how best to transfer your property is to understand
how the gains from the disposal are taxed: A principal residence will
not trigger capital gains and home owners are free to decide which
property they designate as their principal residence, Mr. Golombek
"Even though you may have a property that you consider to be your
principal residence, such as the family home where you live most of the
year, another property, such as a cottage or even a vacation property
located outside of Canada, can be your principal residence," he says.
The principal residence exemption (PRE), however, can only be applied to
one property per taxation year. If the gain from the sale of a property
is not reported on your tax return, it will be assumed that this was
your principal residence for the years you owned it, precluding you
from using the exemption for your other property for the years of
"You should make a conscious decision whether or not to claim the PRE
when you dispose of a property," cautions Mr. Golombek. "Considering
the past appreciation in value and the potential for future increases,
it may make sense to save the PRE for the property with the most
While capital gains on the disposal of a second property cannot be
avoided altogether, there are strategies to reduce or defer the tax
liability, including life insurance, the use of a trust or a
"Passing on the family home or cottage is not an easy decision to make,
particularly since a great deal of emotion is attached to it," says Mr.
Golombek. "With professional advice and advance planning, you may be
able to mitigate some of the challenges that arise from owning multiple
CIBC is a leading Canadian-based global financial institution with 11
million personal banking and business clients. Through our three major
business units - Retail and Business Banking, Wealth Management and
Wholesale Banking - CIBC offers a full range of products and services
through its comprehensive electronic banking network, branches and
offices across Canada with offices in the United States and around the
world. You can find other news releases and information about CIBC on
our corporate website at www.cibc.com/ca/media-centre/.
SOURCE Canadian Imperial Bank of Commerce
For further information:
Caroline Van Hasselt, Director, External Communications, at 416-784-6699 or e-mail: Caroline.VanHasselt@cibc.com