Cottage ownership is enjoyed by many. Having a place away from home, where you can experience the great outdoors with family and friends is golden. Other people prefer a change in scenery and would rather have the flexibility of going to different places rather than be compelled to one given location. I guess different strokes for different folks.
If you own a cottage or second home and are now seeking to sell, a few things will come to mind- mainly the tax implications of ownership.
A cottage, or second home, is considered a personal-use property if it is used primarily for personal use by yourself, family member or beneficiaries of a trust.
Where things get a little bit complex is when calculating the capital gain upon sale.
There is no deemed disposition(sale) 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.
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 except for listed Property losses, (ie. Loss on the sale of gold coin, etc.) which can be deducted against listed property gains.
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 before 1972, only the increase since December 31, 1971, is taxable.