Why Selling a Cottage Now to Save on Capital Gains Tax Could Cost You More

Those who were planning to sell their cottage this summer are up against the clock if they want to get ahead of the June 24th deadline in an effort to keep more of their money. The announcement of the 2024 budget revealed that as of June 25th, the capital gains tax inclusion rate will rise to 66.67 per cent, up from the current 50 per cent inclusion rate, on capital gains greater than $250,000.

What are Capital Gains?

Here’s the official definition of “capital gains,” per Canada Revenue Agency: You have a capital gain when you sell, or are considered to have sold, a capital property for more than the total of its adjusted cost base and the outlays and expenses incurred to sell the property.
(Source: Canada Revenue Agency)

Your gains will vary depending on the purchase price, and the final selling price. And the selling price will depend on other factors, such as the property’s location and condition, buyer demand in the area, and of course, how desperate you are to sell it. But generally speaking, odds are if you bought or inherited a cottage and are looking to sell it now, you’ll see a return.

For example, according to the 2018 RE/MAX Recreational Property Report, the average price of a waterfront cottage in Muskoka, Ontario was $1,027,000. In 2024, the average price was $1,412,237. So, if you bought in 2018 and sold in 2024, you’ll have gained about $385,237.

Individuals with capital gains of $250,000 or more who sell and close the deal by June 24 will be taxed on 50 per cent of their gain. So, in the example above, capital gains tax will be payable on $192,618.50. If you sell your cottage on June 25 or after, you’ll be taxed 66.67 per cent of the gain – so, $256,837.51.

So, You’re Sold on Selling Your Cottage

For those who have already decided to sell this year and may have even gotten the ball rolling earlier this year, it could pay off to expedite the sale before June 25. Here’s what you need to know: the lead time is very tight, with only one month left to list and close the transaction by June 24, but selling your cottage in a short time frame is possible.

The first step is to find an experienced, local agent. Work with someone who specializes in selling recreational properties in your specific area. Each property type and local market has its own intricacies. Awareness of how to navigate them will go a long way to getting your property sold.

Next, price the property appropriately. The goal of most property sellers is to get the highest offer, but overpricing the property can turn buyers off. Furthermore, buyers tend to shop properties within certain price ranges, so setting your sights too high can mean serious buyers won’t even see your listing. The bottom line is to be realistic and be competitive. Your agent will pull the selling price of properties that have sold in the area recently (called “comparables”) and recommend a price for your listing that reflects current market conditions and what your property is worth.

Be willing to negotiate. If you’re bound and determined to sell your cottage by June 24, you may have to make concessions at the offer table, whether it’s giving a little on the price, or potentially other conditions of the sale.

And these concessions are the reason some industry experts are cautioning sellers that rushing the sale might not actually pay off, despite the looming higher capital gains tax inclusion rate.

Risks of Rushing the Sale

Doing anything under pressure comes with inherent risks – including selling a cottage. In fact, rushing to beat the tax deadline might actually end up costing you more.

You’d have to probably price so aggressively that it would offset any potential losses or extra taxes you’d be paying. (by Christopher Alexander, President, RE/MAX Canada)

Selling a property the right way requires planning and can take time.

Furthermore, “You’d have to probably price so aggressively that it would offset any potential losses or extra taxes you’d be paying,” Christopher Alexander, president at RE/MAX Canada, told Global News in an interview.

Also consider that the seller may not have enough time to prepare the listing, clean up the property and stage the home to attract the right buyer. Yes, these matters and not doing this prep work can result in lower offers that would offset the increase in capital gains tax.

No Mass Cottage Sell-Off in Sight

With all of this in mind, are recreational properties still a good investment? Absolutely. And that’s why we don’t expect a mass sell-off of recreational properties this summer. A 2024 survey of Canadian cottage owners, conducted by Leger and commissioned by RE/MAX, reveals that those who have already gained a foothold in the cottage market are determined to hold on to this asset, as many Canadians consider their cottages “second homes.”

One caveat to remember is that joint property owners who sell will each have to realize a capital gain of more than $250,000, to be taxed at the higher rate. This would apply in the case of married couples who bought a cottage together. However, the change to the tax is more likely to impact someone who bought their cottage 40 years ago and has seen a considerable increase in value in that time.

The June 25 deadline, if nothing else, has prompted deeper consideration on whether to sell, have estate planning discussions earlier, or hang onto a property for longer. To learn more about cottage market trends in Canada, contact a RE/MAX agent.