In the recent federal budget, the government proposed increasing the capital gains tax (CGT) inclusion rate from 50 per cent to about 66 per cent on gains greater than $250,000. This proposed change is intended to target “the 0.1 per cent” of Canadians who can afford to pay more. But, an unintended consequence of increasing the CGT inclusion rate is that many middle- and working-class cottagers will be at risk of seeing their long-treasured cottages pass out of the family if they aren’t able to pay the tax.
In my time working at Cottage Life, I have visited hundreds of cottages, from giant mansions kitted out with multi-slip boathouses and private putting greens, all the way to rustic, off-grid, one-room shacks on tucked-away lakes. But the large majority of cottages I’ve seen are squarely in between; they are comfortable, but not luxurious, with a dock and a canoe, maybe a small, one-room bunkie for weekend guests, and a deck for entertaining or just hanging out with family. The owners aren’t tech bros or high-powered executives. Mostly, they are average Canadians; a couple of teachers who enjoy having their lakeside spot to spend summers off, or middle management professionals who happily battle the traffic each weekend to reach their quiet lake, where they can relax and enjoy a slower pace. Or, increasingly, young families that rent in the city who bought their first residence on a lake in cottage country (which they, in turn, rent out to help cover the increasing costs of ownership).
All of the cottagers I have met would call themselves privileged to have a place on the lake, though I doubt many of them would call themselves among the one per cent, let alone the 0.1 per cent. These are also the people who have been contacting us since the proposed increase with their stories.
One of them is a woman I’ll call Janet, a second-generation cottager on a mid-sized lake in southern Ontario. Her father purchased a 1,200 sq. ft., three-season Viceroy in the ’60s for $3,000. It’s the kind of getaway that was built all over the country during the 1960s, when the government opened up large portions of Crown land.
Janet, a retired school teacher, talked to me about how their family cottage is beloved “like another child,” but expensive. “We’ve had to scrimp and save to make anything happen there,” she says, estimating that it takes about $10,000 per year to carry the property—including taxes, insurance, and basic upkeep—and “that’s before anything has broken yet.” (And, as any cottager will tell you, something is always breaking.) But they happily prioritize their cottage, and it’s been worth the sacrifices they’ve made because it’s an integral part of their family life.
Their two kids love being there, and Janet loves being able to give them the same experiences that she had as a kid. She and her husband, who is also retired, have always planned to pass down the cottage to their children, but with the potential increase to the CGT, she is nervous. The value of her property has increased dramatically since she assumed ownership in 2010 (when her father paid the CGT upon transfer).
The pandemic era saw cottage prices skyrocket, and the fair-market value of her property has increased beyond $250,000, the level at which the CGT inclusion rate could increase. All of that adds up to a significantly higher bill for Janet and her husband to pay. She is determined to cover this for her children, if she can. “I can’t saddle our kids with this extra tax when they are having such a hard time just getting onto the property ladder themselves.”
But Janet and her family are not among the 0.1 per cent. “We are average Canadians, and this is a lot of money. Plus, the timelines are unfairly short, and this has come out of the blue. There is no magical money tree for us.” Of course, selling would create a windfall. But they don’t want the money, they want the cottage. It’s home to their most treasured memories. It was never a financial investment for them; it was an investment in their family life.
When you’ve spent a lifetime in one place, you care a great deal about the vibrancy of that place. Janet deeply loves her lake and wants to see the community and environment there thrive. She’s been a keen participant in her local life, serving as archivist for her road association, helping to digitize decades’ worth of old documents so they don’t get lost to time. It’s her bit to pitch in for her neighbours. “There is a vibrant community spirit here.”
Cottagers new and old contribute their time and, quite often, their money, to grassroots environmental initiatives across Canada’s rural areas, acting as front-line stewards of the environment by keeping a close eye on water quality, keeping invasive species in check, or protecting species at risk. But those who wish to pass their cottages on to their families offer something unique. They have a vested interest in keeping that cottage environment healthy and safe for future generations, and they often guide new cottagers into environmental stewardship via lake associations. Their legacy knowledge is valuable. And yet it is these very people who are at risk of losing their cottages should this change to the CGT inclusion rate go through.
There is no question that cottagers are privileged to have a second home, even if it is a simple one in the wilderness, but that doesn’t make them wealthy enough to pay hundreds of thousands of dollars in unexpected tax dollars. And if middle-class Canadian cottagers such as Janet stand to see their long-time retreats pass out of the family because of a change to our tax laws, who is gaining? And what will be lost? “The government thinks they are doing this for the benefit of average Canadians,” says Janet, “but that’s us.”
