Selling cottages, or any asset for that matter, to children for less than fair market value can result in double taxation because the transferor will have proceeds equal to fair market value and the recipient will have an adjusted cost base equal to what they paid.
(i) a gift to the child which would be a disposition at fair market value to the transferor and an adjusted cost base of fair market value to the transferee or,
(ii) a sale, for example, for a promissory note equal to fair market value which may be forgiven on death. This would also give a fair market value disposition and a fair market value adjusted cost base. If the note is forgiven on death there may be no adverse tax consequences. Also, if the note cannot be demanded earlier than a period of five years, a reserve could be claimed on the capital gain for five years. The cottage may qualify for a principal residence exemption.