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Finally the warm weather has arrived. As you head out to your cottage this summer for some much needed R&R and time spent with family you will also look forward to much more fun-filled summers with friends and family. There is one thing that also should grab your attention. You may be sitting on a tax time bomb.

What do I mean by that?

The income tax act contains a “deemed disposition” rule i.e. when a taxpayer dies the act considers that the taxpayer has disposed of all capital properties immediately before death and has received proceeds equal to fair market value of that property. Your cottage is subject to rule unless a spousal rollover is available. So potentially you leave behind a tax liability for your loved ones to deal with. If your cottage has increased in value since you purchased it, the increase will be considered as a capital gain. One half of this gain would become taxable at your marginal tax rate on your final return. Depending on how much your property has increased since you purchased it you could be looking at a fairly substantial amount. The result of this could force a sale of that cottage to get the necessary funds to pay that tax. Obviously you would rather your heirs inherit the cottage, not the tax associated with it.

What is the solution?

Well the most simplest and easy one is life insurance. Purchase a personal life insurance plan or possibly a Joint last to die if you have a spouse.

As far as the insurance amount needed goes, we would sit down and determine a sufficient amount of coverage to cover the tax and probate fees associated with this situation. On your passing or last death of you and your spouse the life insurance then pays to the named beneficiary resulting in immediate cash flow to cover the tax.

Remember, for this solution to work the best, action is required on your part. The sooner the better as life insurance premiums cost more as you age so locking in a price now is of utmost importance. Also consider the fact that by waiting a change in your health could make you uninsurable.

Russ MacDonald This article is of relevance to anyone who knows of someone or who currently owns a cottage of their own.

Please feel free to call me to discuss your current situation and allow me to help you tackle these problems.

Contact me, Russ MacDonald, at 800-667-7640 for Moose Jaw life insurance quote.


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