We are officially into summer vacation (in fact, I'm writing
this while on holidays, renting a lovely house on the ocean). So
while I'm in this state of mind, I thought it would be fitting
to write about vacation homes and the tax issues that may arise. In
fact, if you are in the market for a cottage as a second home, then
thought should be given to proper tax planning as any future sale
or transfer within the family can result in a bundle in tax.
Principal Residence
It's true that you can potentially "cover" your
capital gains tax exposure on a cottage or vacation home by
claiming the principal residence exemption. However, in order to be
eligible for the exemption, the property must be ordinarily
inhabited by you, your spouse or your children. If the cottage is
purely meant to be an investment property, to be rented out
throughout the year, the principal residence exemption cannot be
claimed. However, remember that the exemption is claimed on a
year-by-year
