Does Owning a Second Home Impact Your Tax Situation?
We have talked about owning a second home for a variety of reasons like perhaps renting it out to generate some extra income. Then you may have purchased a second home with the idea of fixing it up and selling it for a profit which may be called property flipping. Now lets talk about that second home that you use as your getaway or your vacation home.
The good news is that this is considered as your personal property. In the eyes of the CRA you are not likely going to be making any money from it and it is for your personal enjoyment or for family and friends.
The bad news is if you do decide to sell it and you make a profit from it, then you may be subject to capital gains which you may have to pay tax on. If however, you sell it and take a loss then you most likely can’t claim this.
It may be a little frustrating and seem like the tax benefits are in favor of the CRA. It sometimes seems like the tax payers and the tax department of the Government play a cat a mouse sort of game with each other.
Tax payers are continuously looking for ways to make money yet minimize the tax on this. At the same time the CRA is constantly closing up loop holes that allow for this. In the case of the cottage property some owners want to rent this dwelling out for a few weeks when they are not using it. This way it helps to pay for the cost. If this is done then the rent has to be claimed as income and could be taxable. Further to this one has to be very careful as to how this is done, so it doesn’t put the property owner in the position of being classed as being in the business of real estate.
One thing you can be sure about with the tax department is that they will make every effort to get what is owed to them. Plus, there are always rules and set criteria which more often than not is complex and hard to decipher.
For this reason many people are now turning to good accountants to help them with their tax matters even if they don’t own a lot of investments or are in a high income bracket. Every dollar counts and if your tax professional can save you some of these then it well worth the small price you will be paying for his services.