Tax partner Karen Slezak, with Toronto accounting firm Soberman LLP, says that merely renting out your cottage for one month per year shouldn't affect its status as a principal residence in the eyes of the Canada Revenue Agency (CRA). "So long as the main reason for owning the property remains personal use, the fact that the owner has earned some incidental rental income doesn't disqualify it," Slezak explains. However, "incidental" is the operative word here. The cottage must remain primarily for your own and your family's use, not for generating income. If you were to make structural changes to your cottage specifically to accommodate the rental activity, or if you were to claim capital cost allowance (CCA), you'd be limiting your freedom to claim it as your principal residence.

These caveats are set out in interpretation bulletin IT-120R6, also titled "Principal Residence" - one of those "clarifications"of the Income Tax Act that, if read over many times while ingesting sufficient caffeine, actually do lift the fog a little. As paragraph 32 explains, the CRA considers that the entire property retains its nature as a principal residence where the following conditions are met:

1. The income-producing use (in this case, your renting out of the cottage) is ancillary to the main use of the property as your residence.

2. There is no structural change to the property that relates to the rental. For instance, if you installed partitions and separate entrances that turned the cottage, in effect, into separate units, and regularly rented out one of the units, the CRA would say that a "change of use" had taken place and only the part you resided in would qualify as your principal residence.

3. You haven't claimed CCA on the property. The logic here is that the CCA (or depreciation) deduction is designed to help businesses compensate for the fact that buildings and equipment wear out or become obsolete and have to be replaced. Sure, we know that happens at the cottage, too! But if you claim CCA in one or more tax years, you'll trigger those change-of-use rules again, and your cottage will not qualify as a principal residence during those years.