What are the tax implications of buying a vacation home?
Before buying a vacation property, you should be aware of tax implications 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.
Even if you’ve never before owned a home, you won’t qualify for the First-time Home Buyers’ Exemption program because the home isn’t your principal residence.
BC Speculation and Vacancy Tax
The tax rate varies depending on:
- the owner’s tax residency; and
- whether the owner is a Canadian citizen or permanent resident of Canada, or a member of a satellite family.
It applies based on ownership as of December 31 each year. There are exemptions.
Vancouver Empty Homes Tax
If you buy a vacation home in the city of Vancouver, you’ll be charged the Empty Homes Tax at a rate of 3 per cent for the tax year, unless the property is:
- Used as a principal residence by you, a family member or friend, or other permitted occupier for at least six months of the tax year.
- Rented for residential purposes for at least six months of the current year, in periods of 30 or more consecutive days.
- Meets the criteria for one of the exemptions.
You can determine if the Empty Homes Tax applies to you.
Vacation homes as rental properties
- If you plan to rent their vacation properties, 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, Whistler has Temporary Tourist Accommodation Regulations.
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.
You 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.
You may also have to register for a GST number since the GST applies to rentals. For detailed information, read this Canada Revenue Agency (CRA) information.
If you’re using a property as an investment, you may be eligible to claim the Capital Cost Allowance (CCA) for rental property.
You may also be eligible for a GST/HST new residential rental property rebate.
Federal capital gains tax
As the property owner, you must pay Capital Gains Tax on a second property (non-principal residence) when the property is sold or transferred.
For example, if someone buys a small Whistler condominium for $500,000, and a decade later the property is valued at $750,000 when they die, the capital gain is $250,000. Half of that amount, or $125,000, is taxable.
However, if this person’s spouse is still alive, ownership can be transferred to them. Known as a spousal rollover, this transfer can delay capital gains taxes.
Vacation property buyers should seek professional advice from Revenue Canada at 1-800-959-8281.