Many Canadians don't realize that those beautiful Muskoka and Big Bay cottage our parents paid almost nothing for are going to become a massive burden when their gone, not a free inherited vacation property.
Well, the way taxes work in this land of milk and honey is that a taxpayer and his spouse are only entitled to one primary property.
So basically, that primary residence property will pass on tax-free, but that $2 million cottage won't. You and your sibling will be responsible for Capital Gains tax for the cottage. Which is currently the amount you earned, divided by two and then your personal income tax rate applied.
OK, your parents bought a cottage on lake muskoka for $1 million dollars. When they die it is worth $3 million dollars.
You and your siblings are responsible for:
3,000,000 (current value) - 1,000,000 (purchase price) /2 * your income tax rate.
That can be up to $530,000 in tax under current legislation.
SO WHAT DO WE DO?
You make sure that your parents have proper life insurance in place. Term insurance can be cheap, but has an annual cost. If you go with Whole Life, it'll cost more upfront but be the cheapest in the long run, especially with many Canadians living over 90 these days.
Give me a call 416.425.5712 or email me firstname.lastname@example.org for more info on how we can protect your parents estate and that beautiful cottage you want to own at no cost.