There are lots of reasons for selling a second home. You may be looking for a change, going through a separation, or noticing the property value has gone up. In some regions, the price of cottages and condos has doubled , which is advantageous for sellers.
Since the pandemic, the secondary residence sector has been quiet due to rising interest rates. However, this trend seems to be reversing, as the key rate has been dropping since the summer of 2024. This is encouraging news for the cottage market, which is particularly important for the Laurentides and other regions of Quebec.
Understanding tax implications is crucial when selling your cottage, condo or any other secondary residence, especially since June 25, 2024, when the motion concerning the new capital gains tax inclusion rate was tabled. Previously, 50% of the capital gain was taxable, but now the rate is 66.7% for gains exceeding $250,000.
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Tips and tricksPlease note that the new regulations introduced last June have not yet been officially enshrined in law as of January 2025. However, government authorities suggest that you calculate your tax rate according to the new regulations. Contact your financial advisor to learn about the full tax implications of selling a second home, and to make sure you fill out your tax return properly. |
A principal residence is where you live most of the time. It’s different from a second home (e.g., a lakeside cottage, a cabin in the mountains, an apartment for working in the city or a slopeside condo), which is only occupied for part of the year, such as on weekends or during holidays.
As a Canadian taxpayer, you must declare your principal residence on your income tax return. If you designate a property as your principal residence, you may be exempt from capital gains tax on the sale, depending on the circumstances.
The residence must meet the following conditions to be considered a principal residence by the Government of Canada:
Remember that you can only designate one property as your principal residence per year, whether you’re an owner or a tenant. However, there may be some exceptions and complexities. Professionals such as accountants, tax specialists, real estate brokers and financial planners can help you figure out the details for your situation.
Is your cottage a secondary or seasonal residence? First of all, it’s not a question of where it is or how it’s built, but rather how it’s being used. The law varies slightly when classifying a residence as secondary or seasonal, depending on which province you live in.
A secondary residence is occupied regularly throughout the year, especially weekends and holidays, while a seasonal residence is occupied irregularly, occasionally, or only for certain months (e.g., a three-season cottage). However, there’s no difference when you’re selling.
What about a secondary residence you don’t live in, such as a rental property or rental home? Rental properties are real estate assets, not second homes, so they are considered investments and therefore a source of income.
So you’ve decided to sell your second home. That’s great, but before you put up the For Sale sign and share the good news with your friends, you need to calculate the taxes and learn the tax implications of selling a second home.
A capital gain is the amount you receive once you sell your cottage or any other residence.
| Capital gain = selling price – purchase price and certain expenses |
The tax rate on capital gains is higher when you’re selling a secondary residence than when you’re selling a principal residence.
There are a few ways to reduce the tax payable on capital gains when you sell:
Judith bought a cottage for $125,000 before the pandemic. Over time, she did renovations ($50,000) and the property value grew.
Judith can now sell her cottage for $300,000.
Capital gains are calculated as follows: $300,000 selling price – $175,000 purchase price & renovation costs = $125,000
Judith made a capital gain of $125,000; 50% is considered a taxable gain, while the other 50% is not.
In June 2024, the tax rate for capital gains changed.
Taking this information into account, let’s say that Judith made major renovations to her cottage and made a capital gain of more than $250,000. The tax rate on the first $250,000 will be 50%. The tax rate on the rest will be 66.7%.
To help you understand the different tax rates, the table below compares the capital gains taxes for a principal residence and a second home.
Capital gains tax in Quebec |
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| Principal residence | ||
| Scenario | Tax payable | |
| If it has been the principal residence since you bought it | No tax payable on the gain | |
| If the property alternates between being used as a principal residence and a secondary residence | Tax payable on a portion of the gain | |
| Second home | ||
| Scenario | Tax payable | |
| If there is a gain of less than $250,000 | 50% of the gain is taxable | |
| If there is a gain of $250,000 or more |
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When your kids were young, you went to the cottage every weekend and made incredible memories. Now that they’re working, you don’t go as often. No problem—that’s no reason to leave the property unoccupied! Rent it out, but be aware that there will be tax implications.
When you change a property’s purpose, for example if you decide to rent out your cottage, you’re changing its use, so it’ll be considered a source of income or an income property.
Note: When you sell, you’ll have to pay capital gains tax (see the table above in the second home section) regardless of whether you rent out your secondary residence.
Since you now rent out your residence and have additional income, you’ll also have to pay tax on your new income (rental income minus expenses), just like any landlord. The tax rate is based on your total annual income (salary, business income, investment and rental income).
A portion of certain general costs may be considered expenses:
Costs directly related to renting the property out can be entirely considered expenses:
Before making the decision to rent out your second home, consult your tax specialist or accountant to learn about all the tax implications and requirements.
If you’re looking to make your cottage or second home profitable, check out these 9 tips for renting your cottage hassle-free.
Source: Centris
In the Laurentians, as in many other regions, renovations before selling a property can play a key role in its appeal and sale price. Here are the renovations generally considered the most profitable, as well as those that tend to be less beneficial. 3 Most Profitable Renovations 1. Kitchen Renovation The kitchen is often the
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