The Hidden Tax Implications of Real Estate in Retirement
A Canadian Financial Planner’s Guide to Protecting Wealth and Planning Ahead
Real estate is one of the most common ways Canadians build wealth.
But as retirement approaches, many overlook one critical truth:
Without the right planning, real estate can create a bigger tax bill than expected.
As a financial planner, I regularly work with clients who are shocked by:
- How much tax they owe on the cottage or rental they planned to pass down
- The effect rental income has on their tax bracket
- The probate costs of passing property through their estate
This post unpacks some of the most common tax pitfalls—and how to avoid them with a solid, faith-aligned strategy.
1. Capital Gains on Secondary Properties
Your principal residence is usually tax-free when sold or passed down.
But that’s not true for:
- Rental properties
- Vacation homes or cottages
- Former residences not designated as your primary home
In these cases, capital gains tax applies on any growth in value since you bought the property. This can trigger tens (or hundreds) of thousands in unexpected tax if not planned for.
💡 Tip: Capital gains can be reduced through timing, gifting, or tax-sheltered giving strategies.
2. Rental Income and Tax Brackets
Rental income is considered taxable income and can push retirees into a higher tax bracket, especially if they’re also drawing RRIF income or CPP.
The result?
- Reduced government benefits (like OAS clawback)
- Higher tax on other sources of income
- Less flexibility in drawdown planning
💡 Tip: Consider who owns the rental property (individual, spouse, or corporation) and how income is reported.
3. Probate and Estate Transfer Costs
Passing property through a will can trigger:
- Probate fees (up to 1.5% in some provinces)
- Delays in asset distribution
- Legal and administrative costs
In some cases, joint ownership, trusts, or gifting strategies can reduce or avoid these issues—but they must be planned well in advance.
4. Missed Legacy or Giving Opportunities
Real estate can also be a powerful giving tool.
But many miss the chance to:
- Donate the proceeds from a property sale
- Use a Donor-Advised Fund
- Pass property early to children through a well-structured strategy
From a stewardship perspective, real estate shouldn’t just be about tax—it should be about impact.
“A good person leaves an inheritance for their children’s children.” – Proverbs 13:22
Final Thoughts
If you own property and are within 5–10 years of retirement, now is the time to get strategic.
The tax system won’t wait. But with the right plan, you can reduce unnecessary taxes, protect your legacy, and use your real estate as a blessing—not a burden.
Let’s Talk
I help Canadians build real estate into a smart, tax-efficient retirement plan—so you can retire with peace of mind and purpose.
📅 Book a 30-minute discovery call and let’s map out a plan together.