Blog: Can I still use the principal residence exemption for my cottage?April 16th, 2017
I READ THAT the Canada Revenue Agency has changed the reporting rules when it comes to someone selling a principal residence. Can I still use the exemption if I sell my cottage?
—Remy Johnson, via email
Absolutely. First, a refresher: when you sell a property at a profit, you can avoid paying taxes on the capital gain if the property has been your principal residence for the entire time that you’ve owned it. There’s no reason that you can’t use the principal residence exemption for your cottage, assuming that it meets all the government’s requirements for a “principal residence.” These requirements haven’t changed. What has changed: if you sold your cottage on or after January 1, 2016, and you want to claim it as your principal residence, you now need to report the sale on your income tax and benefit return. Under the old rules, you didn’t. (Caveat: you’ve always had to report a sale where the exemption didn’t eliminate the entire taxable gain, for example, because you had rented your cottage for a portion of the time that you owned it.)
More paperwork? Thanks, government. “I suspect that the CRA woke up to the fact that people are over-claiming the exemption,” says Karen Slezak, a tax partner with Crowe Soberman in Toronto. “Lots of times people just don’t realize how the formula works, and how the calculations are made.” One common mistake is claiming a cottage as a principal residence for years that overlap with another principal residence, such as a permanent home.
Published with permission of Cottage Life. This article was originally published in the Spring 2017 issue of Cottage Life magazine.