Canadian Lawyer

gains exemption for their cottage, if the value of the cottage has appreciated more than another home, and it makes sense to designate it as the principal residence for that year. But the designation can only be made at the time of selling the property. Yens Pedersen, of Miller Thomson LLP in Regina, finds often the high appreciation of the cottage makes it the likely place to claim the capital gains tax exemption. But since the exemption can only be claimed when a property is sold, the time value of money may mean it is better to claim the exemption immediately than hold onto it. "For instance, if you never plan to sell the cottage, but you think that there is a reasonable chance that you may move houses two times over the next 20 to 30 years, it probably makes more sense to claim the exemption when selling the houses, rather than to hold on to the exemption for the capital gain that will arise on the cottage only when you die," says Pedersen. He points out capital investments in the properties can vastly reduce the adjusted cost base, lowering the amount of capital gains tax to be paid upon the sale. The trick is ensuring all the expenses made throughout the family's ownership of the property are tracked. "I don't see a lot of information available to the public when it comes to tracking capital costs. You have a much longer horizon for keeping receipts than the usual seven years," he says. The improvement expenditures on a property could well make a difference on deciding which property the capital gains exemption should be applied to and the resulting amount of capital gains tax to be paid. A cottage can be held in a personal trust, which also has tax advantages. One strategy is to have the trust roll the cottage to the beneficiaries, deferring the capital gains tax on the transfer. If the beneficiaries didn't own property during the time the cottage was in the trust, they can claim it as their principal residence and avoid paying the capital gains tax when the cottage is sold. A trust can also protect it against a claim that the cottage constitutes a matrimonial home. On the practical side, when cottage owners dismiss Hacker's suggestion to sell, they end up with something he likens to a fractional ownership without the framework. So he goes to Plan B: a detailed and lengthy agreement signed by everyone involved. It lays out how the cottage will be used, assigning weeks or months to all the family members. That schedule is rotated every year. It includes a financial plan to ensure bills are paid and sets up a scheme for what happens when someone doesn't pay their share, including losing their assigned use of the cottage. There's also a maintenance plan. Does it remain a quaint, old place, or is there a unanimous desire to renovate it into the dream vacation home? And then there's what happens when one wants to bow out. Under the Partition Act, just one dissent could force the legal sale of the cottage. Ultimately, dealing with the transfer of the family cottage can be difficult and prolonged. "When you have properties that have an emotional attachment to them . . . they more easily become the subject for a fight," observes Pedersen. "The fights are not about the money or the cottage. They just become surrogates for a bigger issue. It's really about competition and emotions and feelings that have been going on for a long time." djacent properties, and any easements ovided in this agreement and save and e are complied with; you (b) any registered un with the land providing that such are telephone lines, cable television lines or e, where the central to the real estate transaction.ass Keeping you original mortgagee has s for the supply of domestic utility or tele le of the mortgage and the right to recei titleplus.ca do not materially affect the present use ments with publicly regulated utilities prov * * ® The TitlePLUS® policy is underwritten by Lawyers' Professional Indemnity Company (LAWPRO®). Registered trademark of Lawyers' Professional Indemnity Company. Untitled-1 1 1-800-410-1013 www.CANADIAN L a w ye r m a g . c o m 12-08-10 11:53 AM J u ly 2013 21

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