All About Estates
By Derek Hambly, June 5th, 2025
It is that time of year again when cottages, cabins and recreational properties are top of mind.
Sitting in traffic getting out of town to get to the lake doesn’t seem so bad when your home-away-from-home is waiting for you…. unless of course you are worrying about the capital gain that has accrued on that property and you find yourself wondering just how you, or your heirs, are going to handle it.
In the usual course, when cottage properties pass between spouses either by rights of survivorship, qualified spousal trust, or through a spousal rollover, a capital gain is not realized. While it is true that a surviving spouse can choose to realize the capital gain at the passing of their spouse, it is unusual. The usual course is for capital gains to be triggered by the death of the second spouse and last surviving joint tenant.
So… what can you do now –or what discretion can you afford your heirs to do later– to avoid, reduce or manage the impending capital gain on the cottage property?
In short, if your cottage does not double as a qualified farm or fishing property, avoiding capital gains entirely can only really be done by declaring the cottage as your principal residence. An individual can designate one real property as their principal residence and the growth in value of that property while it is the principal residence is not included as income on the individuals tax return after the sale or transfer of the property.
Derek Hambly, Estate and Trust Consultant, Scotiatrust London
The good news is that CRA does not specify an exact duration of time an individual or their family members, including a spouse, common-law partner or children, must reside in a dwelling for it to qualify as a principal residence for a given year (but keep in mind that you may not be able to claim principal residence exemption if the camp was used to generate rental income).
