Cottage Q&A
QUESTION
Does lot size have an effect on whether or not I can declare my cottage my principal residence?
Marc Allard, Toronto, Ont.
ANSWER
In a word, yes, lot size does affect how the Canada Revenue Agency (CRA) views your principal residence. The CRA defines any principal residence as including both a house and adjoining land “that can be reasonably regarded as contributing to the use and enjoyment of the housing unit as a residence.” The CRA permits a property of up to half a hectare (about 1.25 acres) to be declared a primary residence in the majority of cases. But according to John Johnson, a partner at law firm Nelligan O’Brien Payne in Ottawa and head of its estate planning group, a parcel any larger will raise red flags. The taxpayer will have to demonstrate that the extra land is “clearly necessary” for use of the cottage, so a woodlot or any luxuries, such as your pitch-and-putt golf course may be disallowed. In addition, any excess portion of the land that generates income for a property owner – if you operate a business on the acreage, for example, or rent fields to a farmer for crops or grazing – will also be deemed unnecessary. Land needed for a road to access the cottage, or land that couldn’t reasonably be severed or subdivided (possibly because it doesn’t meet a minimum municipal size requirement) is okay.
Any land outside the portion deemed necessary for your primary residence is subject to capital gains tax upon a transfer of property, says Karen Slezak, a tax partner at Soberman Chartered Accountants in Toronto.
Steve Brearton
Published in the April/May ’07 issue of Cottage Life.
Read more about cottage taxes in this article Fair Taxation for Cottagers
