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Home -> Personal Income Tax -> Cottages and second homesTax Implications of Owning a Cottage or Second HomeIncome Tax Act s. 40(2)(g)(iii), s. 54A cottage, or second home, is considered personal-use property, if it is used primarily for the personal use or enjoyment of
Change in Use of the CottageThere 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. Sale of the Cottage / Principal Residence ExemptionWhen 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 except for listed personal property (LPP) losses, which can be deducted from LPP gains. Tracking the Cost of the CottageIt is important to keep a record of the adjusted cost base (ACB) of both the primary home and the cottage, to be used to calculate the gain on sale, because the principal residence exemption could apply to either property. If the cottage has been owned since before 1972, only the increase in value since December 31, 1971 is taxable, because taxation of capital gains began with the 1972 taxation year. December 31, 1971 is the valuation day (V-day) for properties owned prior to that date. Tracking the Cost of Your Principal ResidenceEven if you don't own a second property, the ACB of your home needs to be tracked, because its status as a principal residence could change in the future, for instance if you decide to buy a cottage and at some point want to designate it as your principal residence. Principal Residence Exemption and the CottageSee our article on the principal residence exemption for more information on claiming this exemption for a cottage. Other ResourcesDecember 2020 Life in the Tax Lane video including information on family cottages Miller Thomson - Passing on the Family Cottage BDO - Tax Planning Strategies for Cottage Owners Canada Revenue Agency (CRA) ResourcesLine 12700 (line 127 prior to 2019) Capital Gains, which includes information on personal-use property under the link Capital Losses and Deductions IT232R3 - Losses - Their Deductibility in the Loss Year or Other Years (Archived) Income Tax Folio S1-F3-C2 Principal Residence Tax Tip: Always track the ACB of your home and your 2nd home or cottage!
Revised: October 26, 2023
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