Taxation of a cottage and of a home converted into a rental property were among the topics raised in the latest batch of reader letters. Here’s what they wanted to know.
Q: “I am retired and have lived in a rental apartment in Montreal for many years. I also own a cottage in the Laurentians and would like to sell it. On my tax returns, I have always used my apartment address as my residence. If and when I sell the cottage, will it trigger a capital gain? Can I use my cottage address as my principal residence and therefore avoid the capital gain?”
A: No need to juggle or fret over the addresses. A cottage can count as your principal residence if you choose to designate it as such, regardless of the address on your tax return, as long as you spend some time there each year. In your case, it’s an easy call, since you don’t own the other property you occupy. If you did own two properties at one time and took the principal-residence exemption when you sold the other one, there might be some capital-gains tax due on the cottage, but it would only apply for the period where the two properties overlapped.
Q: “I will be buying a new house in the coming months and moving in, making it my principal residence. I plan on renting the one I’ve lived in for the past two years, since the mortgage penalty would be too high if I sold it. Where do I stand as far as capital gains if and when I sell either property?”
A: You can have only one principal residence at a time for tax purposes, so the principal-residence exemption will cover the one you’re in now until you move out, and gets transferred to the new purchase when you transfer. Any appreciation in value of the original house from the time you move out until the time you sell it (or move back in) will be subject to the 50-per-cent capital-gains tax.
Paul Delean, Montreal Gazette