Broker tips for cottage properties

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The cottage real estate market is heating up along with the weather and brokers may be getting more inquiries from clients about purchasing these recreational properties. But are they prepared to answer all the questions?

Christine Van Cauwenberghe, the assistant vice-president of tax and estate planning at Investors Group, told MortgageBrokerNews.ca's sister publication, CREW,  that vacation properties have quite a few unique expenses of which potential owners might not be aware – the most glaring of which are the tax considerations.

“The main thing with a cottage is that people have to understand that when you are passing on a cottage to someone else – to family, say – there is a potential capital gain,” Van Cauwenberghe said.

Van Cauwenberghe explained that when you dispose of assets – via inheritance, for example – it may trigger a capital gain that will equal the fair market value of the property less the cost base of the property, which can include capital improvements.

“So if you’ve invested money into the property it will affect capital gains,” she said. “If the property has gone up in value, 50 per cent of that is taxable, except when you transfer assets to a spouse, or if you use a principle residence exemption.”

Many people use the principle residence exemption for their urban home, and are not aware that the same exemption cannot be extended to their vacation property. Van Cauwenberghe says property owners need to account for that possible gain if they plan on passing the property on to family.

  • bruce on 2014-06-12 11:59:31 AM

    clarifying - the prin res exemption CAN be extended to the cottage, but you can NOT claim two prin res at the same time if you own another property that you perhaps live in. Depending how values have moved of your cottage and the other property, you can pick and choose which you wish deemed as the prin res. and further you can go back and forth over the years of ownership. BUT AGAIN, NOT AT THE SAME TIME, so the other property would be subject to the gain during the time the one property( ie the cottage) is deemed as prin res Many cottages have jumped in value much more than the home people are living in ( unless they live in Toronto, perhaps!) and deeming the cottage as the prin res can have dramatic tax benefits ( and legally)

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