Seems I have had a lot of interest on the taxable part of lake ownership when it comes to capital gains. I’m posting an ad in its entirety that may help you especially if you have bought in the last few years and are considering moving up. However with all information please make sure your accountant is the person who you should be listening to when it comes to making sure you are personally covered.
Save on capital gains with the best tax break in the country
Here’s a news flash for Canadian senators trying to justify where they live so they can claim a few perks from Ottawa.
When it comes time to sell one of them could be the biggest break of all. The Canada Revenue Agency allows you to pick the property where you have the largest capital gain as your principal residence, and it could save you thousands in taxes.
“I can’t think of any tax break of the same magnitude,” said Gurinder Sandhu, executive vice-president of Re/Max Ontario-Atlantic and a trained accountant.
“The basic premise is that you designate the property with the largest gain as your principal residence,” he says.
Jamie Golombek, managing director of tax and estate planning, says that means Canadians can escape all taxes on profits from their sale of that home.
Typically, you pay tax on half of any realized capital again based on your individual tax rate. So a $100,000 gain could cost you almost $25,000 in taxes at the top marginal rate in Ontario.
Avoiding that hit might be the biggest break in the Canadian tax code. Put a little sweaty equity into a house and it’s about the only way you won’t get taxed on your work.
“At the time of sale you have to choose what you are designating as principal residence. You can only have one for a calendar year,” said Mr. Golombek, adding you only have to nominally inhabit the property.
That will be good news for people like Mike Duffy, the Conservative senator who lists a home in Cavendish, P.E.I., as his primary residence. He has expensed taxpayers $33,000 for his living accommodations in Ottawa, which he says is his second home.
Some reports suggests few have seen Mr. Duffy near his cottage home but that doesn’t mean much tax-wise because Mr. Golombek says you can spend as little as one day per year and still claim the exemption.
The scenario of having two homes, each eligible for a capital gains break, is one that plays out for many Canadians, not just senators. Some may even have a cottage worth more than the home they reside in most of the year.
Remember when you do sell one of your homes, you either report the gain or the government considers you claimed the exemption.
“When you sell the next one you’d only get [a break on a portion] of the [capital] gain,” said Mr. Golombek.
Don’t pay the tax on the second home and you could be guilty of tax evasion. And, if you think you can put one home in your name and the other your spouse’s, you can’t. There’s one capital gain for both parties and that goes for common-law couples too.