1937 Flooded Panache Road (from Augusta Lake) Courtesy of Al Norman
2020 Lake Stewardship Report
Please follow the link 2020_lake_partner_program_western_portion_of_lake_panache_nov_2020.pdf
for Michael Michalski's November 2020 report
Notice of Expansion of our Land Use Permit
West Panache Campers’ Association (WPCA), owners of the dock at West Bay, have applied to and received permission from the Ministry of Natural Resources to expand their parking lot lease to include lands in front of West Bay Lodge. The dock is maintained by WPCA for our members and the general public. Any individuals parking their vehicles within the jurisdiction of our LUP (includes handicapped spaces) will be now required to pay for parking.
Please follow the link 2020_lake_partner_program_western_portion_of_lake_panache_nov_2020.pdf
for Michael Michalski's November 2020 report
Notice of Expansion of our Land Use Permit
West Panache Campers’ Association (WPCA), owners of the dock at West Bay, have applied to and received permission from the Ministry of Natural Resources to expand their parking lot lease to include lands in front of West Bay Lodge. The dock is maintained by WPCA for our members and the general public. Any individuals parking their vehicles within the jurisdiction of our LUP (includes handicapped spaces) will be now required to pay for parking.
Sewage System Information
The links on the right can provide valuable information on handling both grey and black water at your cottage. More to follow...
|
FOCA Fact Sheet-Septic Systems
|
Keeping the Family Cottage in the Family - Tax Issues
By Michael Hennessy
I hope that our camp will stay in the family when I’m gone, and that the next generation(s) will be able to afford it and will also derive the joy from it. I hope that our family is saved the battles that so divide some families, when parents have no plan for camp succession.
Succession planning, namely transferring control and ownership to the young ones, has a bunch of elements. We won’t cover all of them here. But it should be no surprise that many of those elements have something to do with taxes.
A couple of general comments about taxes that impact on cottages and succession are in order. First taxes come in all sorts of flavors, with complex rules for each flavor. Second, governments are always changing the rules, at least some of the finer points. With these things in mind, here are a few highlights you’ll want to keep in mind when considering how to pass along the camp.
Capital Gains Taxes
Chances are your cottage is worth more than when you bought it. When it is sold, or when the owner of the camp dies, you will have to pay capital gains tax on the difference between the value of the cottage when you purchased it, and the value at sale or death, less any capital improvement costs. 50% of the capital gain is added to your income when the transaction takes place and is taxed at your marginal tax rate.
You do not avoid capital gains tax by gifting the camp to your kids. Revenue Canada will deem you to have sold the cottage at its market value. However, you can reduce your capital gains tax liability by keeping receipts for the costs you incur for renovations and upgrades. These costs are added to the adjusted cost base of your camp and decrease the amount of the capital gain upon which you will be taxed.
Example:
say Original purchase price: $100,000.
say major improvements: $ 50,000.
say market value at death of owner $200,000.
then Capital Gain: $200 - 100 - 50 = $ 50,000.
Included into income of owner year of death: 50% of $50,000= $25,000.
tax hit (say at tax rate of 50% ) = $12,500.
Principle Residence Exemption.
Perhaps the biggest tax break an individual can get in Canada is avoiding the income tax from capital gains for a principle residence. First some basics.
- every individual or couple can name one property they are an owner of as a principle residence - the gain in value of a property while it is a principle residence is exempt from tax.
- a camp or cottage may be designated by its owner as a principle residence
- typically one does not have to make the designation as a principle residence until the year in which the property is sold or transferred to another owner.
Before any sale or gift of your camp to someone of the next generation, it is best to consider whether it should be designated as a principle residence. Sometimes this will involve calculating which of a couple of properties you might own is the best one to designate based on the gain in value during ownership.
Estate Administration Tax
This tax, used to be called a Probate Fee. It kicks in if the estate of a deceased person needs to have the estate trustee formally approved by a Court. And that is generally required where there is property (as in real estate) belonging to the deceased alone. Jointly held property goes to the surviving joint owner without the need for probate.
The tax is payable at the time the trustee of the Will asks a court for probate (approval of the trustee or a last Will).
The tax is roughly 1.5% of the value of the whole estate. So on an estate worth $200,000. The tax is about $3,000.
Properties that are owned by two or more people jointly do not count as part of the estate if one owner dies, and accordingly do not attract the tax.
So, one strategy for avoiding this tax is to put a camp property jointly in the name of someone from the younger generation. However, this approach has been known to backfire, and care must be exercised before taking this step.
Trusts
If you and your spouse are both over 65 years old, you may transfer ownership of your cottage to a trust without triggering the capital gains tax. The tax will still have to be paid when the surviving spouse dies, but the trust will give you an enhanced degree of flexibility in how the camp is dealt with, and provides some protection against creditors and marital breakdown. You maintain control over the cottage during your lifetime, at which time control will transfer to your children, who will be trustees of the trust, in accordance with the plan that is developed in the interim. Things have to be sorted out within 21 years of the trust being formed, or the government will deem a disposition to have taken place, and will collect the capital gains tax.
As you might imagine, writing up a trust document can be quite technical and involve some expense. There are situations where the tax benefits of setting up a trust are quite worthwhile. This is best decided with the assistance of a knowledgeable lawyer or accountant.
Wrap Up
If this article does nothing else, we hope it will prompt a discussion with your kids about the future of the camp. Do they have an interest in keeping it in the family? If so, are they prepared to share ownership with their siblings? Sorting this out now will avoid disputes over your estate. It is always unfortunate when the passing of a parent leads to further heartache and anguish arising from a dispute over the estate’s assets.
Succession planning invariably considers the tax angle of any proposed transactions, or developments. This piece has introduced some of the typical tax elements you will want to consider.
Giving these issues some careful reflection before a crisis develops, and if appropriate getting some sound advice in the early stages, will make for sensible succession, and allow even more fond memories of your camp.
Michael Hennessy is a lawyer at Weaver Simmons, LLP, in Sudbury, and is proud steward of a camp on the East end of Lake Penage. He may be reached at 705-674-6421.
March 2019
I hope that our camp will stay in the family when I’m gone, and that the next generation(s) will be able to afford it and will also derive the joy from it. I hope that our family is saved the battles that so divide some families, when parents have no plan for camp succession.
Succession planning, namely transferring control and ownership to the young ones, has a bunch of elements. We won’t cover all of them here. But it should be no surprise that many of those elements have something to do with taxes.
A couple of general comments about taxes that impact on cottages and succession are in order. First taxes come in all sorts of flavors, with complex rules for each flavor. Second, governments are always changing the rules, at least some of the finer points. With these things in mind, here are a few highlights you’ll want to keep in mind when considering how to pass along the camp.
Capital Gains Taxes
Chances are your cottage is worth more than when you bought it. When it is sold, or when the owner of the camp dies, you will have to pay capital gains tax on the difference between the value of the cottage when you purchased it, and the value at sale or death, less any capital improvement costs. 50% of the capital gain is added to your income when the transaction takes place and is taxed at your marginal tax rate.
You do not avoid capital gains tax by gifting the camp to your kids. Revenue Canada will deem you to have sold the cottage at its market value. However, you can reduce your capital gains tax liability by keeping receipts for the costs you incur for renovations and upgrades. These costs are added to the adjusted cost base of your camp and decrease the amount of the capital gain upon which you will be taxed.
Example:
say Original purchase price: $100,000.
say major improvements: $ 50,000.
say market value at death of owner $200,000.
then Capital Gain: $200 - 100 - 50 = $ 50,000.
Included into income of owner year of death: 50% of $50,000= $25,000.
tax hit (say at tax rate of 50% ) = $12,500.
Principle Residence Exemption.
Perhaps the biggest tax break an individual can get in Canada is avoiding the income tax from capital gains for a principle residence. First some basics.
- every individual or couple can name one property they are an owner of as a principle residence - the gain in value of a property while it is a principle residence is exempt from tax.
- a camp or cottage may be designated by its owner as a principle residence
- typically one does not have to make the designation as a principle residence until the year in which the property is sold or transferred to another owner.
Before any sale or gift of your camp to someone of the next generation, it is best to consider whether it should be designated as a principle residence. Sometimes this will involve calculating which of a couple of properties you might own is the best one to designate based on the gain in value during ownership.
Estate Administration Tax
This tax, used to be called a Probate Fee. It kicks in if the estate of a deceased person needs to have the estate trustee formally approved by a Court. And that is generally required where there is property (as in real estate) belonging to the deceased alone. Jointly held property goes to the surviving joint owner without the need for probate.
The tax is payable at the time the trustee of the Will asks a court for probate (approval of the trustee or a last Will).
The tax is roughly 1.5% of the value of the whole estate. So on an estate worth $200,000. The tax is about $3,000.
Properties that are owned by two or more people jointly do not count as part of the estate if one owner dies, and accordingly do not attract the tax.
So, one strategy for avoiding this tax is to put a camp property jointly in the name of someone from the younger generation. However, this approach has been known to backfire, and care must be exercised before taking this step.
Trusts
If you and your spouse are both over 65 years old, you may transfer ownership of your cottage to a trust without triggering the capital gains tax. The tax will still have to be paid when the surviving spouse dies, but the trust will give you an enhanced degree of flexibility in how the camp is dealt with, and provides some protection against creditors and marital breakdown. You maintain control over the cottage during your lifetime, at which time control will transfer to your children, who will be trustees of the trust, in accordance with the plan that is developed in the interim. Things have to be sorted out within 21 years of the trust being formed, or the government will deem a disposition to have taken place, and will collect the capital gains tax.
As you might imagine, writing up a trust document can be quite technical and involve some expense. There are situations where the tax benefits of setting up a trust are quite worthwhile. This is best decided with the assistance of a knowledgeable lawyer or accountant.
Wrap Up
If this article does nothing else, we hope it will prompt a discussion with your kids about the future of the camp. Do they have an interest in keeping it in the family? If so, are they prepared to share ownership with their siblings? Sorting this out now will avoid disputes over your estate. It is always unfortunate when the passing of a parent leads to further heartache and anguish arising from a dispute over the estate’s assets.
Succession planning invariably considers the tax angle of any proposed transactions, or developments. This piece has introduced some of the typical tax elements you will want to consider.
Giving these issues some careful reflection before a crisis develops, and if appropriate getting some sound advice in the early stages, will make for sensible succession, and allow even more fond memories of your camp.
Michael Hennessy is a lawyer at Weaver Simmons, LLP, in Sudbury, and is proud steward of a camp on the East end of Lake Penage. He may be reached at 705-674-6421.
March 2019