Ah, the cottage. Growing up in Canada, many of us are blessed with early childhood memories of playing on the sandy beaches or rocky coves of one of the country’s pristine lakes. As adults, we appreciate the chance to escape to the lake every bit as much as the kids – that iconic moment at the end of the dock, with your favourite beverage in hand, listening to the loons as the sun goes down.
You might call it a cottage, a cabin, or a lakehouse, depending what part of the country you’re from. Whatever you call it, owning one is part of the Canadian dream. Your very own piece of rock where you can leave your boat, your books, and your favourite beer in the fridge – a little piece of heaven.
As any cottage owner will attest however, the privilege of ownership is rarely smooth sailing. Property taxes, utilities and maintenance on recreational real estate can be hugely stressful, particularly during an economic slowdown when incomes are shrinking. For those sharing a family lakehouse with siblings, step-siblings and in-laws, things can get very complicated. Different priorities, changing financial situations, marriages, kids, divorces, and varying levels of time at the property, can all make for some long and awkward emails. For some families, the question of whether to add a screened-in porch, or fix the dock, can quickly escalate into an epic battle, not only over money, but over perceived slights, values, or a rehash of the broken jet ski of 2005.
Inevitably, there comes a time in every lakehouse’s life when the investment no longer makes sense for one or more of the family members. Letting go of a place with history is never easy, yet the motivation to sell can stem from a multitude of personal reasons. In 2018, Penny Caldwell wrote in Cottage Life: “The reality is that many families own valuable properties not because they’re wealthy, but because they’re lucky. Some adventurous soul bought a plot of land and built a cottage. It’s been handed down, possibly for generations, without a significant capital gain—until recently, when the value of waterfront property skyrocketed. When the kids inherit the beloved cottage, their only option may be to sell it in order to pay the tax.”
Capital gains taxes are a critical factor when it comes to deciding what to do with a family cottage. A professional tax advisor or financial planner can certainly help with strategies. Once the decision is made to sell however, be prepared for the inevitable pushback from all those who loved staying there, blissfully oblivious to the upkeep, expenses and sibling squabbles. As they look at you woefully, reminiscing over their time spent at your beautiful lake house, you can gently remind them to be thankful that is all they had to spend.