Tax implications of vacation homes

Posted on August 11th, 2017

Summer holiday spotTax implications of vacation homes
It’s happened to many of us. You spend a gloriously relaxing weekend or week out of town, at Whistler, Pender Island or even in downtown Vancouver. You find yourself thinking, “Maybe we should buy a place here and get away more often. It could be a great investment.”

If you’re considering buying a vacation property, be aware of tax and other important considerations.

Provincial Property Transfer Tax
The Property Transfer Tax (PTT) is charged whether you buy undeveloped land, a second home, a strata property or fractional ownership.

If you have never before owned a home, you will not qualify for the First-Time Home Buyers’ Exemption Program since the home must be used as a principal residence.

Rentals
If you plan to rent your vacation property, make sure rentals are permitted. Stratas may not allow rentals as outlined here.

Some municipal bylaws also restrict rentals, and impose specific conditions. For example, Vancouver

Vancouver is proposing to regulate short-term rentals, and AirBnbs are not legal.

Richmond which also restricts bed and breakfast businesses in dwellings that already have a secondary suite, coach house, “granny” flat, or with existing lodging. Violators can be fined up to $1,000 per day per offence.

Whistler passed a bylaw on July 18, 2017 to prevent illegal overnight rentals in residential neighbourhoods zoned RS, RM, RR, and RSE. Rentals of less than four consecutive weeks are not permitted.

If a property is within a zone that permits nightly rentals, the property owner must get an annual $165 business license. Violators face fines of $1,000 per day. Learn about Whistler’s temporary tourist accommodation use.

Check to see if a Whistler property has restrictive zoning regulations on this GSI interactive mapping tool.

There are significant tax differences between:

  • occasionally renting a vacation property such as a cottage; and
  • buying a vacation property as an investment property to rent.

Your client must keep detailed records and receipts to document net rental income – revenue less expenses.

Expenses could include advertising the rental property, cleaning, maintenance, repair, utilities, property taxes, property management, insurance and accounting fees.

Property owners may also have to register for a GST number since the GST applies to rents. For detailed information, read this Revenue Canada information.

If the property is an investment used to generate income, the owner may be eligible to claim the Capital cost allowance (CCA) for rental property .

Property owners may be eligible for a GST/HST New Residential Rental Property Rebate.

Property owners must complete Form T776, Statement or Real Estate Rentals and, if applicable, Rental losses.

Federal Capital-Gains Tax
Property owners must pay Capital Gains Tax on a second property (non-principal residences) when the property is sold or transferred.

For example, if a property owner buys a Whistler townhome for $500,000 and a decade later dies, and the property is valued at $750,000, the capital gain is $250,000. Half or $125,000 is taxable.

If, however, a spouse is still alive, ownership can be transferred to this spouse (known as a spousal rollover), which delays capital gains taxes.

Other considerations
Land use and zoning
If you plan to build a vacation home, you should contact the local municipality to find out about zoning regulations and future development plans.

Services
If you plan to buy property in a remote area, be clear about where you will get services such as electricity and water. With BC becoming dryer, relying on a well might not be the best option.

  • Vacation property buyers should seek professional advice.
  • Revenue Canada can be reached at 1-800-959-8281.

For information, contact your Royal Pacific Realty Group REALTOR®.

Source: Real Estate Board of Greater Vancouver and Royal Pacific Realty Group.