Can You Afford to Inherit your Family Cottage in Canada?

Over the next three years, nearly 900,000 Baby Boomers are expected to retire in Canada. In tandem, the long anticipated $1-trillion intergenerational transfer of wealth from Boomers to Generation X (which is already underway) will continue. With inherited properties included in this wealth transfer, major shifts pertaining to ownership are coming to the real estate market, and Cottage Country is no exception. So, what does this all mean if you own a cottage in Canada, or expect to become a beneficiary?

Research shows that succession planning has become more relevant. According to a Leger survey conducted on behalf of RE/MAX Canada, as part of its 2023 Cottage Trends Report, 42 per cent of current recreational property owners in Canada are holding onto their properties in the hopes of passing them down to family members; and 51 per cent of Canadians who own or plan to own a recreational property pointed to the opportunity to pass it down to family, as a key motivator for buying.

Expecting to inherit a cottage in Canada? Read this.

With interest in cottage ownership remaining strong, many questions around family planning are coming to light. If you inherit a cottage in Canada, can you afford to keep it? Should you sell it? What taxes are involved? Where should you be looking to buy a cottage in Canada, if succession is part of the end goal? And for those who already own a cottage, what key considerations should you be aware of in relation to succession planning?

“When it comes to succession planning, recreational properties are always a good addition to any real estate portfolio,” says Christopher Alexander, President, RE/MAX Canada. “Given the long-term ROI that they typically yield, a cottage in Canada is an excellent opportunity for inheritance aspirations as well.”

In an effort to keep that ROI “in the family,” Canadians are planning ahead. According to a Leger survey commissioned on behalf of REMAX as part of the report:

1. 56% of Canadians plan to or have already put their property in their beneficiary’s name while they’re still alive. Transferring ownership of the property can alleviate the tax burden associated with an inherited cottage.
2. 74% of recreational property owners feel confident that they will be able to pass down their property to their family with the proper planning.
3. 48% of recreational property owners agree that working with a real estate agent has led them to consider factors such as succession planning for their properties.

For many, the planning process will include awareness of taxable capital gain – the portion of your capital gain that you must report as income on your income tax and benefit return – on an inherited recreational property. With all of this in mind, we’ve broken down the average price in ten of Canada’s popular recreational markets, the capital gains between 2016 and 2023, and what beneficiaries of an inherited cottage there can expect to pay in capital gains tax.

If you’ve inherited a cottage in Canada, here’s the average 7-year gain, and the tax on it

Whistler, BC

Average price for 2023: $1,623,452
Capital Gain Tax Amount: $213,323
Capital Gain Amount: $855,000

In one of the most popular recreational areas in the country, Whistler is undergoing a demographic change as younger generations, particularly Millennials looking for work-from-home properties and real estate investments, move into the area. This area appeals to those who love to travel and work remotely with high-demand features like waterfront properties, an abundance of recreational activities, excellent Wi-Fi and more.

Should your family be looking to pass down the cottage to you, you’re likely going to pay over $200,000 in taxable capital gains but you could earn around $855,000.

Ucluelet, BC

Average price for 2023: $764,000
Capital Gain Tax Amount: $13,024
Capital Gain Amount: $64,000

 Beautiful Ucluelet, BC is a popular destination for vacationers but also for those seeking year-round homes. The area includes fiber optic internet access and excellent surfing, making it an ideal location for those looking to visit their vacation home year-round.

Should your family be passing down the family cottage in Ucluelet, you can expect to pay over $13,000 in taxable capital gains while earning about $64,000.

Canmore, AB

Average price for 2023: $974,000
Capital Gain Tax Amount: $105,818
Capital Gain Amount: $440,910

Canmore has long been a popular cottage spot for Americans and Canadians alike. It’s an attractive region for summer and winter cottaging among young families, couples, and retirees. The area’s access to ski slopes and other recreational activities are a top demand for buyers.

Families inheriting a property in this region can expect to pay over $105,000 in capital gains tax while earning over $440,000 in capital gains.

Sylvan Lake and surrounding areas, AB

Average price for 2023: $509,500
Capital Gain Tax Amount: $0
Capital Gain Amount: -$179,500

 With waterfront properties and access to recreational activities like water sports and properties with large outdoor/green spaces, Sylvan Lake and its surrounding areas are a popular choice for out of province and local Albertan buyers searching for a more affordable cottage this summer.

Families inheriting a cottage property in this region will likely pay next to nothing in capital gains tax, however, their capital loss could reach over $179,000.

Grand Bend, ON

Average price for 2023: $912,135
Capital Gain Tax Amount: $48,739
Capital Loss Amount: $182,135 

With prime access to the beach, lake and other recreational activities, the Grand Bend market is popular among retirees, and even investors coming from local city markets such as London, Kitchener-Waterloo, and the Greater Toronto Area. In-demand features include a waterfront location and larger properties with plenty of outdoor space.

If you’re expecting to inherit a cottage in Grand Bend, you’re looking at paying over $48,000 in capital gain tax, while potentially earning just over $182,000.

Muskoka, ON

Average price for 2023: $841,887
Capital Gain Tax Amount: $124,939
Capital Gain Amount: $466,887

 The Muskoka market is world-renowned for its many lakes, beautiful forests, and impressive cottage properties. The region offers cottagers in-demand features and amenities including access to recreational activities (i.e., water sports and waterskiing), good wi-fi and large properties with plenty of outdoor and green space. Its proximity to Toronto-GTA make it a popular destination for those looking to escape the city.

If you’re fortunate to have a family cottage in Muskoka, based on current averages, you can expect to pay nearly $125,000 in taxable capital gains, while earning over $466,000.

Greater Sudbury, Manitoulin & French River, ON

Average price for 2023: $553,665
Capital Gain Tax Amount: $70,728
Capital Loss Amount: $328,054

Unique to the Greater Sudbury, Manitoulin & French River region as compared with other cities in Ontario is that most recreational property buyers are local and not from larger city centres like Toronto – specifically families investing in secondary properties. Demand is expected to increase due to a major intergenerational wealth transfer from retiring Baby Boomers.

If you’re one of the many family members included in this transfer of wealth, you could pay over $70,000 in capital gains tax, however, your capital gains could be just under $330,000.

Prince Edward County, ON

Average price for 2023: $1,373,069
Capital Gain Tax Amount: $287,153
Capital Gain Amount: $1,073,069 

Prince Edward County’s beaches, wineries and cycling trails make it a popular destination for cottagers and weekenders from Toronto and even Ottawa. Young and middle-aged couples are currently driving the market, with good Wi-Fi access and waterfront locations in high demand.

If your family is looking to sell the family property in Prince Edward County, you can expect to pay around $287,000 in capital gains tax and earn up to or over $1,000,000.

Peterborough and the Kawarthas ON

Average price for 2023: $855,858
Capital Gain Tax Amount: $126,002
Capital Gain Amount: $470,858

Peterborough and the Kawarthas have long been desirable market for cottagers due to the relative affordability and the quality of life offered in both regions. Waterfront properties are the number one in demand feature for this area, followed by large outdoor spaces and access to recreational activities and water sports. Like many popular Ontario markets, its proximity to the GTA make it a popular summer spot for Torontonians.

If you’re expecting to inherit a cottage in this region, you can expect to pay around $126,000 in capital gains tax and potentially earn up to or over $470,000.

Charlottetown Area, PEI

Average price for 2023: $292,550
Capital Gain Tax Amount: $17,198
Capital Gain Amount: $92,718

Over the last year, the Charlottetown area has been attractive for local and out-of-province buyers with young and middle-aged couples, particularly Gen X, leading the charge in cottage sales for the year. The region is anticipating Baby Boomers with “true” cottages (i.e., homes that are not used year-round and only visited a few times a year) will likely sell them to build on the land or buy year-round homes in the same areas.

Should your family decide to pass down their Charlottetown cottage to you, you’ll likely pay just over $17,000 in capital gains tax and earn just under $93,000 in capital gains.

John’s, NL

Average price for 2023: $251,667
Capital Gain Tax Amount: $15,786
Capital Gain Amount: $88,667

Cottages in St. John’s are perfect for permanent remote or hybrid workers who are looking for year-round access to waterfront properties with strong and reliable Wi-Fi. It’s also a high-demand market: in this region, most properties don’t last on the market for more than 30 days, according to a local RE/MAX broker.

If your family-owned property is in St. John’s, you’ll likely pay just under $16,000 in capital gains tax and experience a capital gain of over $88,000.

When you’re ready to buy or sell your cottage in Canada, contact an agent for advice and guidance through the process.

Average Tax Rates above are an estimates and can vary depending on personal income tax filing levels. Average Tax Rate calculated using TaxTips.ca’s 2023 & 2022 Tax Rates & Tax Brackets – Canada, Provinces & Territories. Source: https://www.taxtips.ca/marginal-tax-rates-in-canada.htm. Estimated Total Employment Income based on Statistics Canada Median after-tax income, Canada and provinces, 2016 to 2020. Source: https://www150.statcan.gc.ca/n1/daily-quotidien/220323/t002a-eng.htm