In June, the Federal government increased the Capital Gains Inclusion Rate.
While most people don’t generate $250k in annual capital gains, selling significant assets like a home or cottage will be affected.
Previously, 50% of the gain was included as income and taxed at your marginal rate. Now, gains over $250k are taxed at 66.67%. Profits from selling a principal residence are tax-exempt, but selling non-residences like cottages will result in higher taxes.
We spoke to Nicole Ewing, Director of Tax and Estate Planning at TD Wealth who explained another scenario; when you pass away.
Ewing warns that without proper planning for the larger tax bill you could lose the cottage.
There are some things you can do to help reduce the impact of this. If you are transitioning the family cottage during life to the next generation, Ewing explains that you can stagger the sale over multiple years.
Ewing recommends you contact your tax consultant, banker and/or financial planner to help transition this appropriately.
It’s also important to discuss with family whether they want the cottage and can they afford the tax bill. Ewing always recommends lots of planning and the sooner the better to avoid unexpected costs.
Written by Jeremy Hall