Things to consider before turning your cottage into a year-round home
Convert summer cottage to year-round home
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You love your cottage and spend every moment you can there. But should you leave the city behind and live there full-time? Here are some things to consider before turning your cottage into a year-round home.
Lifestyle – “The biggest advantage of converting your cottage into a permanent residence is that you will be spending more time at a place that you love,” says Chartered Accountant Sandra Bussey, Associate Partner, Tax Services, with KPMG LLP in Waterloo. “You are also likely to grow closer to other year-round residents and develop a new social network.”
Isolation – While today’s technology makes it easier to keep in touch with friends and family back in the city, you will be farther away from them for longer periods of time. “You may also be a significant distance away from important amenities such as medical services and grocery stores,” says Bussey. “You will likely have to drive more often and for longer distances, in winter weather, to get the goods and services you need.” And while there may be many summer cottage activities you enjoy, you won’t be able to swim and boat during the winter. “Consider how far you will be from other people, and what you would do to entertain yourself during the winter months,” Bussey advises.
Costs – Most summer cottages require renovations before becoming suitable for year-round living. “You may need to winterize the cottage, upgrade the septic system or even put on an addition,” says Bussey. “Will the cottage plumbing be able to handle a washer and dryer? Will you need to purchase snow removal equipment or services?”
Capital gains tax – Make sure you understand how capital gains tax provisions will affect the sale of your house in the city and any future sale of your cottage. “Many people don’t understand that you can’t apply the principal residence exemption from capital gains taxes to the entire amount of capital gain for both locations,” says Bussey. “Also be sure to keep records of all the improvements you make to your cottage, so you can include these as part of the cost of the cottage when you calculate your capital gain upon its sale or disposition.”
Estate planning – “Many families don’t have trouble selling a house as part of settling an estate, but they often want to keep a cottage in the family,” says Bussey. “That can create a whole series of estate planning issues, such as how to treat everyone fairly, particularly if not all your heirs live close to the cottage or are interested in spending time there.”
Talk to a Chartered Accountant – “Your CA can help you determine the real costs of converting your cottage to a year-round residence,” says Bussey. “Your CA can also advise on how capital gains tax provisions will affect you and can help you develop an effective estate plan.”