The tax consequences of buying and selling recreational property
Win 37 regions across the country.
In Kelowna, the median selling price of waterfront recreational homes is projected to be $735,000 in 2018.
That’s quite a drop from $980,000 last year.
The report derives the median price from all of the lakefront and waterside condos, townhouses and single-family homes sold.
The median is a reflection that you can buy a one-bedroom condo in a waterfront project for as little as $350,000 or lakefront mansion for $2 million or more.
The report did not generate a number for non-waterfront recreational property in Kelowna.
Virtually, any condo, townhouse or single-family home in the city that’s purchased by someone who will use the property part-time as a vacation, second, investment or future-retirement can be considered a recreational property.
As such, non-waterfront selling averages in Kelowna range from $250,000 for standard condos and $450,000 for townhouses to $900,000 for luxury condos and $700,000 to $2 million for single-family homes, depending on whether it is average or swanky with a view.
The report did track ski-in, ski-out condos and chalets at Big White Ski Resort. e are most fortunate to live in the Okanagan.
It is a desirable location for real estate investment. Over the last number of years both residential and vacation properties have experienced increases in value.
Do you own a piece of vacation property?
Perhaps you are considering selling it or wanting to pass the property onto your children.
Are you perhaps a potential buyer and considering the purchase of a cabin or lot?
Whether you are selling or buying real estate, it is important to be aware of the tax consequences before making your final decisions.
Many Canadians consider themselves familiar with the tax treatment of selling their principal residence home.
Contrary to popular belief however, the criteria used to define one’s principal residence is not simple.
In order for a home to be designated as your principal residence and for the sale to be considered tax free, certain conditions have to be met.
Some considerations are being a Canadian resident, the ability to claim only one home, ordinarily inhabiting the residence and a limit on the size of property.
Many people mistakenly believe there is a specific amount of time they must own a home in order for it to be considered a principal residence.
If you sold your principal residence in
The median selling price of such properties is forecast to be $327,500 this year, up from $260,000 last.
Again, a vast range of homes is included in the ski median from a hotel-room-type condo for a little under $100,000 to a multi-milliondollar, luxury chalet.
“The Big White market was stagnant for a while and is expected to take off in the coming ski season,” said Redman.
“But you can still get a nice two-bedroom place there for sub-$300,000.”
Redman is seeing a lot of potential recreational buyers from Alberta put plans on hold because of the speculation tax 2018, you are required to report the transaction on your personal income-tax return.
The sale of your principal residence has not become taxable, but details of the sale now need to be reported on your tax return in the year it is sold.
When the property is owned jointly with your spouse, then both of you must report the details of the sale on your tax returns.
This is a new requirement for years 2016 going forward.
For all other property that you own, capital gains apply upon the disposition or sale.
This includes recreational and vacation properties along with vacant land.
Capital gains may be triggered in situations such as when the owner dies, the property is actually sold or when it is gifted to a child or grandchild.
If recreational property is sold while the owner is alive, the selling price is normally equal to the fair market value at the time of the sale. that could add thousands of dollars a year to the cost of owning a second home.
Recreational buyers from Vancouver tend to still be purchasing because they are arriving with the proceeds of selling their homes in the Lower Mainland for $1.5 million or more.
The recreational home market also tends to be somewhat more resilient than the regular real estate market because many of the buyers are wealthy or have been saving up money and factors like economic climate, taxes and price don’t matter as much.
The most expensive places in Canada to buy a waterfront recreational property are Tofino, where the median selling price is expected to hit $1.4 million this year and Muskoka and Barrie in Ontario’s cottage country at $1.03 million and $1 million respectively.
The cheapest regions in the country to pick up waterfront are Cape Breton at $114,000, Newfoundland’s east coast at $144,000 and Ontario’s Manitoulin Island at $208,000.
The report also included some other facts and figures, such as the statistic that one-quarter of Canadians would consider buying a recreational property in the future.
Fifty-eight per cent of people buy
This value is used to establish the amount of capital gains resulting from the sale and income taxes payable.
If an owner wishes to pass or gift the vacation property to their children, the same principle applies.
Whether the transfer of ownership happens upon the death of a parent or while the parent is still alive, the transaction is deemed to occur at fair market value on the date of transfer.
A capital gain is the difference between the cost of the property and the fair market value or proceeds on sale.
Currently, one half of this gain is included in your income for tax purposes.
For example, if a parent owns a cottage with a fair market value of $450,000 and the original cost was $80,000, the capital gain is $370,000.
One half of this capital gain, or $185,000, is added to the taxable income of the parent in the year the cottage is sold, transferred or gifted.
You can see that as the value increases, so do the income tax implications.
In B.C., property and purchase costs may be subject to goods and services tax (GST), provincial sales tax (PST), or both taxes.
Real estate purchased in B.C. is also subject to property purchase tax (PPT).
If you are a non-resident of Canada or live in another province, you may be subject to the new proposed speculation tax introduced by the NDP government in its February 2018 budget.
This tax is also intended to apply to a vacation or second home to have a place where they can go to relax and spend time with family and friends.
Forty-six per cent also mentioned getting away from their regular home and life is important.
Having access to activities, like watersports, hiking and skiing is also cited by 41 per cent.
Being able to rent out a vacation home while they aren’t using it to make income is a bonus for 33 per cent.
And 19 per cent want a vacation home they will eventually retire to.
A long list of factors comes into play when people consider or buy a recreational property, from affordability, water access and reasonable strata fees to proximity to a town, relative seclusion and distance from their primary residence.
Most people, 68 per cent, want a vacation home they can travel to in up to two hours.
Thirty-one per cent are willing to travel two to three hours and 28 per cent are willing to travel more than three hours.
Those numbers add up to more than 100 per cent because there was some overlap in answers.
Travel time includes either driving or a flight or a combination of the two. residents of B.C. who sell real estate located in Kelowna and West Kelowna that is not a principal residence and does not qualify as long-term rental.
What happens if the vacation property is owned by more than one person?
In this case the tax consequences would be spread between the owners in proportion to their interest.
Joint ownership between spouses is a common way of owning recreational property.
Many people mistakenly think if they own an asset with another person that they own that asset jointly. Legally this is not necessarily so. The expression joint ownership applies to those situations where an asset is owned by more than one person with rights of survivorship.
This means upon the death of one of the owners, the title passes directly to the surviving owner or owners.
As with many choices we make, income taxes are one important consideration when recreational property is owned, either individually or jointly.
Doing your homework beforehand helps make sure you have explored all the issues and know what is involved.
Selling of property can range from a good tax decision to a very expensive lesson.
Make sure you know before you act.
Marion Wahl is a chartered professional accountant in Kelowna. Reach her at marionpwahl@shaw.ca.