Personal Income Tax -> Cottages and second homes

Tax implications of owning a cottage or second home

Income Tax Act s. 40(2)(g)(iii),  54

A cottage, or second home, is considered personal-use property, if it is used primarily for the personal use or enjoyment of

There is no deemed disposition if a person moves into their cottage, so no tax will be payable as a result of this move.  However, if the use of the property changes from personal use to being used for the purpose of gaining or producing income, such as a rental property, there is a deemed disposition.  See our article on change in use of real estate.

When a cottage is sold, tax is payable on any capital gain, less any principal residence exemption.  If there is a capital loss, the loss is not deductible, because losses on personal-use property are not deductible.

It is important to keep a record of the adjusted cost base of both the primary home and the cottage, to be used to calculate the gain on sale.  If the cottage has been owned since before 1972, only the increase in value since December 31, 1971 is taxable.

Revised: November 20, 2009