Estate Planning for Etobicoke Homeowners: The House, the Cottage, and What It Actually Costs

If you own a house in Etobicoke and a cottage somewhere north of it, your estate has a tax problem and a paperwork problem, and they are not the same problem. The tax problem is capital gains on the cottage, which can run into six figures. The paperwork problem is probate, which in Ontario costs 1.5 per cent of the estate above $50,000. Most people worry about the smaller one. Here is how the numbers actually fall, using a couple we could have met on any street in Sunnylea.

Planning around a home and a cottage? Start with a current valuation of the Etobicoke property, because every number below moves with it.

One thing before we start. We are real estate brokers, not lawyers or accountants. Nothing here is legal or tax advice, the figures are illustrative, and every family's situation turns on details we cannot see from here. What we can do is show you the shape of the problem so the conversation with your lawyer and your accountant is a shorter one.

The two taxes people mix up

Probate, properly called the Estate Administration Tax. Ontario charges nothing on the first $50,000 of the estate and $15 per $1,000, which is 1.5 per cent, on everything above that. It is a fee for the court confirming your executor has authority to act.

Capital gains at death. When you die you are deemed to have sold everything you own at fair market value the moment before, even though nothing changed hands. Any growth in value gets taxed on your final return. Half of a capital gain is included in income, and at Ontario's top combined marginal rate of 53.53 per cent that works out to an effective 26.76 per cent on the gain itself.

There is a spousal rollover, so the bill usually lands on the second death rather than the first. That is why estate planning conversations tend to happen a decade later than they should.

The example: a house in Sunnylea and a cottage

Say a couple bought their Etobicoke house in 1996 for $285,000 and it is worth $2,650,000 today. They bought the cottage in 2001 for $215,000 and it is worth $1,500,000. Add $400,000 in registered and non-registered savings and you have a $4,550,000 estate. Here is what the second death triggers.

Illustrative. Assumes the top Ontario marginal rate, no adjusted cost base additions for renovations, and that the whole estate is probated. Your accountant will get a different and better number.

Look at the split. The cottage tax is about five times the probate bill. Yet probate is the thing people try to engineer around, usually by adding a child to title, which as we will get to is a different post and often a bad trade.

Which property should you designate?

Here is the part most people get backwards. The principal residence exemption is claimed year by year, and you compare properties on gain per year of ownership, not on total gain.

The house wins, so it takes the designation. But there is a wrinkle worth knowing about. The exemption formula gives you one bonus year, so designating the house for 29 of its 30 years still shelters the entire gain. That frees one year for the cottage, which shelters $102,800 of the cottage gain and saves about $27,509 in tax. It is a modest amount against a $411,000 bill, and it is also free. Ask your accountant to run it.

If the cottage had appreciated faster than the house, the answer flips. In parts of Muskoka and Georgian Bay over certain stretches it has. This is a calculation, not a rule of thumb.

Three related reads if you are working through this:

• The Principal Residence Exemption: What It Covers and Where People Lose It
• Selling a Parent's Home in Etobicoke: Probate, Timing and What to Expect
• Capital Gains on an Investment Property: What Ontario Owners Actually Pay

Where the money has to come from

This is the part that catches families. The tax is due on the final return, roughly six months after death. The cottage is not liquid. If the estate does not hold enough cash, somebody has to sell something, and the something is usually the cottage, at whatever price the market offers in that particular season.

That is a liquidity mismatch, meaning the bill arrives on a schedule the asset cannot meet. There are three common ways families deal with it, and each has a cost:

• Insurance. A joint last-to-die policy is priced to pay out roughly when the tax comes due. You are pre-paying the liability at a discount if you buy young and at a premium if you buy late.
• Liquidity in the estate. Hold enough in registered and non-registered accounts to cover it. The catch is that registered accounts are themselves fully taxable at death, so they are an expensive place to park the money.
• Plan to sell. Decide in advance that the cottage goes, and make that decision while everybody is alive and speaking to each other. Unromantic, and it prevents most of the fights we see.

The part that is not about money

Two or three children, one cottage. Splitting a house is easy because you sell it and divide the proceeds. Splitting a cottage is where families come apart, because one child wants it, one wants the cash, and one wants to keep it but cannot fund their share of the roof.

Whatever your lawyer recommends, the useful step is to ask each child, separately and before anything is drafted, whether they actually want it. The answers are often not what parents assume. A cottage nobody wants is a $1,500,000 asset with a maintenance bill, and it should probably be sold. A cottage one child wants is a fairness problem you can solve with the rest of the estate, or with a buyout agreement written while you are around to explain your reasoning.

What would change this analysis

Three things, mainly. If the cottage was your principal residence for some years, or you have receipts for capital improvements you never added to the cost base, the taxable gain drops, sometimes a lot. Keep the invoices for the new septic and the boathouse. If the capital gains inclusion rate changes, every number above moves; it sits at 50 per cent for 2026 after the proposed increase was cancelled in March 2025, but it has been a political football twice in three years. And if you own through a corporation or a trust, none of the arithmetic above applies to you and you need proper advice.

We cannot do your estate plan, but we can tell you what the Etobicoke property is worth today and what it would realistically sell for, which is the number every other calculation depends on. Book a call and we will give you a current valuation and a real read on the cottage market too. If the answer is that you should hold and do nothing for five years, we will say that.

Dave Dubbin
Etobicoke Real Estate Expert
Dave Dubbin & Associates
Real Estate Broker for Etobicoke and Toronto
Sotheby's International Realty, Canada