Capital Gains Tax on a Cottage

What You Need to Know

Capital Gains Tax Generally Applies to Real Estate in Canada

The primary exception is the principal residence. When you sell your principal residence, you do not have to pay capital gains tax on the profit you make. However, if you sell your cottage, you will have to pay capital gains tax on the profit you make, unless you meet certain criteria.

Capital Gains Tax in Canada

You realize a capital gain when you sell a capital asset and the proceeds of disposition exceeds the adjusted cost base. The adjusted cost base is the original cost of the asset plus any improvements you have made to it over the years. The capital gain is the difference between the proceeds of disposition and the adjusted cost base.

The capital gains tax rate in Canada is 50%. This means that you will pay 50% of your capital gain in taxes. If you have a capital loss, you can deduct it from your capital gain. This will reduce the amount of capital gains tax you have to pay.

The Improvements You Make Over the Years to a Cottage or Investment Property Can Save You on Taxes When You Sell

If you make improvements to your cottage over the years, you can increase its adjusted cost base. This will reduce the amount of capital gain you have to pay when you sell the cottage. For example, if you add a new deck to your cottage, you can add the cost of the deck to the adjusted cost base of the cottage. This will reduce the amount of capital gain you have to pay when you sell the cottage.

You Generally Have a Capital Gain or Loss Whenever You Sell or Are Considered to Have Sold Capital Property

Use Schedule 3 Capital Gains or Losses to report your capital gains and losses. The schedule is part of your personal income tax return. You can find Schedule 3 in the Forms and Publications section of the Canada Revenue Agency website.

To Calculate Any Capital Gain or Loss You Need to Know the Following Three Amounts

The adjusted cost base (ACB) the outlays and expenses incurred to acquire the property, including any costs of additions or improvements made to the property

The proceeds of disposition the amount you received when you sold the property

Any other amounts that are considered to be proceeds of disposition, such as insurance proceeds or compensation for expropriation