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Cottage Gains - Reduce Your Income
If you own a cottage or other vacation property and you're concerned about the capital gains tax that may apply when you sell the cottage or at the time of your death, you may be able to shelter the gain on the property by using the principal residence exemption on the vacation property rather than your regular home. The exemption allows you to sell a home that you or your spouse or child have "ordinarily inhabited" without being taxed on any increase in its value. Each family unit of spouses or common-law spouses and unmarried children under 18 is limited to one principal residence at a time per year, so you can't use the principal residence exemption for your city home as well as the cottage at the same time. You will need to do some calculations to determine how to apply the exemption to minimize the tax.
The tax formula to determine the exempt portion of the taxable gain on sale using the principal residence exemption is as follows:
1 plus the number of tax years ending after the acquisition date (but only after 1971) for which the property was your principal residence and during which you were resident of Canada ___________________________________ X (Multiplied by) The Capital Gain on Sale (Divided by)
the number of tax years ending after the acquisition date (but only after 1971) during which you owned the property
Click HERE for a discussion on lot size restrictions on principal residences.
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