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Turn your summer cottage into a permanent home

You love your cottage, and dream about living there year-round. But is it a good idea? Here are some things to think about before turning your dream into reality.

Assess the positives – “Turning your cottage into a permanent home may allow you to simplify life by having only one home and you may be able to enjoy more time with your family,” says Chartered Professional Accountant George Dube, a partner with Dube & Associates LLP in Kitchener.

...and the negatives – “If the cottage is not already winterized, you may have to incur significant costs to upgrade and insulate it, and you will also have additional costs for utilities, heating and snow removal,” says Chartered Professional Accountant Karen Slezak, a partner with Crowe Soberman LLP in Toronto. “You also need to think about how your lifestyle will change when you move to a new community, especially if it is in a remote location.”

Seek advice on the tax implications – “Either your house or your cottage could be your principal residence, if you use both on a regular basis,” says Slezak. “However, you can only claim one as your principal residence at a specific point in time. If you are selling your city home and moving to the cottage full-time, and your city house had the most appreciation in value, you would designate it to be your principal residence and the sale would be exempt from capital gains tax.”

Talk to your CPA to determine the best approach. “A little preparation now can provide more opportunities for reduced taxes down the road,” adds Dube. “It will also help you properly prepare to support your position before the Canada Revenue Agency at a future point in time.”

Consider the impact on your estate – “If the cottage is your only residence when you die, it can make your estate planning simpler, because there is only one property in the estate,” says Slezak.

However, if you want the cottage to stay in the family after you are gone, things can get complicated.  “Cottages can be extremely controversial from an emotional and family perspective, particularly when parents have passed away and more than one child may be the potential beneficiary,” says Dube. “For example, how should time at the cottage be divided among the children? What if some children want to use the cottage and contribute to its upkeep and others do not?”

Another question is how the taxes on the cottage will be paid upon your death. “One approach is to purchase a life insurance policy to cover the cost of the taxes,” says Dube.

Before you make the move permanent to live out your dream, do some serious financial research, to ensure that dream will work for you and your family - now – and down the line.