Cottages and Taxation

Summertime is finally here and for many people this means cottage time. The word cottage generally means that this is a home you do not normally live in. Therefore it is not your principal residence and is not protected from taxation by the principal residence exemption.

If the cottage has increased in value while you own it, then you will have a capital gain when you sell the property. This capital gain is taxable and 50% of the gain is added to your income in the year you sell or the year you die. Do you know what you paid for the cottage and how much you have spent on improving it since you bought it? This information will be needed to calculate the amounts to be entered on your tax return.

If you are getting some work done on the cottage this summer, new well, new roof a paved driveway for example, make sure that you get a receipt and save it somewhere you will be able to find it when you need it. The temptation to pay cash for work done on the cottage should be resisted. Avoiding being an accessory to tax fraud should be reason enough to avoid the under the table contractors. If that does not do it -keep in mind that if you are hiring someone who does not have workers compensation coverage then you should be getting workers compensation coverage for the workers in your home. If any of them are injured and there is no coverage, this will be your liability. And if that is not enough to convince you there is the tax reason. If you don’t have a receipt for the cottage work then you will pay more tax when you sell the cottage.


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