“Family is a life jacket in the stormy sea of life.”
Many parents act (or have been accused of acting) overprotective at times. This quote of J.K. Rowling from the Harry Potter series seems to imply that protective function is important and can save your life. When considering how much capital gains taxes (CGT) you may have to pay on the transfer of the family cottage to yourself personally, you might hope your family rescues you too. Parents do sometimes pay off the taxman themselves, rather than placing this burden on their children.
CGT is almost certainly the largest tax liability associated with your cottage property. Generally speaking, CGT can be deferred until the cottage is eventually disposed of or sold. However, there is a “deemed disposition” that occurs upon one’s death, which can also occur in other scenarios such as if a property’s use is changed from “ordinarily inhabited” to “rental income-producing property.”
At such times, one will be deemed to have sold the cottage at its fair market value (FMV). CGT will then be calculated on the difference between the FMV and the costs of acquiring the property, also known as its adjusted cost base (ACB). If one is able to increase the computation of their ACB, then one can reduce the amount of the capital gain and the associated CGT payable.
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