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Cottage Life

4 cottage tax considerations you should know about before you file

Owning a cottage comes with extra responsibilities, particularly come tax time. Though more than 155,000 workers at the Canada Revenue Agency and the Treasury Board voted to strike late on April 18th, you still need to file your taxes before the April 30, 2023 deadline to avoid paying penalties.

You might be wondering if there are any special considerations you should be aware of before filing. A good CPA will always guide you in the right direction, but if you’re still handling your taxes yourself, or curious about the tax implications of buying a cottage—here are a few tax considerations you’ll want to keep in mind.

The Staycation Tax Credit

The Staycation Tax Credit was first introduced by the Ontario government in 2021 as a way to bolster travel within the province when out-of-country travel was still challenging due to the pandemic. It was also introduced with the intention of helping Ontario businesses bring in new income as the travel and hospitality industry suffered a huge hit during periods of lockdown.

So, if you live in Ontario and you rented a cottage in Ontario in 2022, you can claim the rental fee you paid and receive a tax credit. “The credit applies mainly to lodging—you can’t claim it on flights, gas, or admission to different parks and amenities,” says Jeanette Chong, a CPA at Canadian Bookkeeping Services. The credit amounts up to $200 for an individual and $400 for a family. “You may need to provide proof, so always keep your receipts for at least seven years,” Chong says. “Since it is a refundable tax credit, you will get this credit regardless if you owe taxes in 2022 or not.”

Claiming rental expenses

If you rent out your cottage even for a short portion of the year, don’t forget to claim rental expenses on your taxes. “You can claim expenses such as property taxes, maintenance fees, and mortgage interest,” Chong says. But keep in mind that you must accurately report expenses based on the time your property was used as a rental. That means, if it was only rented out for two months of the year, you can only claim these expenses for 17 per cent of the year. “In this case, you can claim 17 per cent of property taxes, mortgage interest, and maintenance fees for the year,” she says.

When it comes to expenses related directly to renting the property, you can claim 100 per cent of these expenses. “For example, if you have a cleaning service come in after each renter to clean up, or place an ad somewhere to rent it out, then 100 per cent of those expenses can be claimed.”

Deferring capital gains

Keeping the cottage in the family over generations is a goal for most cottage owners—but that’s not as simple as it seems. When it comes to second homes like cottages, capital gains can become an expense that many children taking over the cottage from deceased parents aren’t prepared for. Especially with cottages that were bought decades ago for a small fraction of what they’re worth today. “When you pass on your cottage, the difference between what you paid for it, and what you sold it for is considered a capital gain,” Chong says. Since your children are on the hook for the capital gains tax upon your death, this bill can come as a big shock. If a cottage was bought for $70,000, for example, and is now worth in the millions, that capital gains tax bill will be large.

But there are ways to ease this tax burden—if your cottage is now worth more than your principal residence, you can switch the cottage to your primary residence for tax purposes and have the second home capital gains tax applied to your other home instead. Alternatively, you can consider co-owning the cottage with your children now. This would require capital gains tax payment on the portion your children now own, making the portion they have to pay after your death significantly less. You can even gift it to them now in full, paying the capital gains tax up until now, so the burden is lessened for them. Of course, there is always a risk in giving up ownership of property, especially if your children have creditors, or spouses who might have other plans for it—so consider these options wisely.

“Another scenario where you can defer the capital gains is if you use that money from the sale to purchase another property,” says Chong. “In the end though, you will still have to pay the capital gains when the second property is sold.”

Expenses you can claim after selling

Finally, if you sold your cottage, don’t forget to claim expenses. “If it is not your principal residence, there are things you can claim—including the cost difference from the original purchase price of the property, land transfer taxes, real estate commissions, real estate inspections, legal fees, and renovation costs,” Chong says. A tax specialist can help ensure you’re claiming everything you legally can, so your tax responsibility will be as low as possible.

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Cottage Life

Mortgage stress test remains unchanged (for now) despite high interest rates

High interest rates over the last 12 months have reduced purchasing power and made borrowing more expensive for Canadians. But the outlook isn’t all doom and gloom for cottage owners and cottage buyers to-be.

Last year, the Bank of Canada raised its key interest rate seven times to 4.25 per cent, its highest level since 2008, in effort to cool consumer spending and lower inflation. Canada’s five major banks moved to increase their prime lending rates 50 basis points, which increases borrowing costs for anyone with a variable rate loan.

In December, the Office of the Superintendent of Financial Institutions (OSFI) announced it would keep the minimum qualifying rate—a mechanism to test whether borrowers will still be able to afford their mortgage if interest rates rise—for uninsured mortgages unchanged at 5.25 per cent.

“In an environment characterized by sustained high inflation, rising mortgage interest rates, and potential risks to borrower income, it is prudent that lenders continue to test borrowers for adverse conditions,” said Tolga Yalkin, the OSFI assistant superintendent for Policy, Innovation, and Stakeholder Affairs, at a media briefing last month.

While the federal banking regulator’s stress test still hovers around 5 per cent, cottage buyers must show they can pay interest payments at 7 per cent—which reduces the size of a mortgage buyers can qualify for, says Ottawa-based mortgage broker Andrew Thake.

Experts say that the high interest rates have worked as intended to slow the demand for big ticket items such as housing and vehicles. Home sales in Canada declined by 3.3 per cent from October to November in 2022, according to CREA.

However, high interest rates have made paying off home and cottage mortgages a strain for those who have them and made it even more difficult for those who want to secure one.

For those looking to buy

Buyers looking for cottages who don’t qualify for a mortgage that is large enough to purchase the type of property they’re interested in may be able to qualify in a year and a half when the stress test rates go down. Those applying for a mortgage today will qualify for less than they would have, had they applied a few years ago.

“You’d either have to put more down, or you just have to settle for a smaller place,” says Thake.

Thake suggested that people looking to buy while interest rates are high could also look at a fixed-rate mortgage for a shorter period of time—think two or three years—and if rates settle down after that, they could look at renewing.

Sometimes, when rates go up, cottage buyers can find savings elsewhere. “Even though interest rates are a bit higher, the price of the cottage is probably substantially lower than what you paid a year or two ago in some markets.”

This month, the OSFI is reviewing Guideline B-20, which includes the minimum qualifying rate (MQR) and other mortgage lending measures. The office launched a public consultation on January 12, which will take place until April 14, 2023.

Among the measures the OSFI is considering are restrictions on how much banks can lend to people whose mortgage exceeds a certain percentage of their gross income. This is something banks already do, but the changes may include tightening up the restrictions, says Thake.

Other changes may also include new debt servicing coverage restrictions, which would limit how much borrowers’ mortgage payments comprise a percentage of their income. Currently, most banks limit a borrowers’ housing obligations to 39 per cent of their gross income, but some major banks push that to 49 per cent.

Additionally, the OSFI is considering implementing a new minimum interest rate that is applied in debt servicing calculations.

“They want to reduce risk in the industry. The OSFI is worried about exposure to heightened risk from a lot of debt, plus a potential recession and high interest rates,” Thake said. “They want to reduce the probability of borrower default.”

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Cottage Life

Cottage Q&A: What does selling “as is” mean?

My wife and I are looking to buy a cottage. The owners are selling it “as is.” Is this common? And is buying a cottage that’s being sold “as is” a good idea?Bewildered Buyer

It’s not uncommon. Selling “as is” usually means: what you see is what you’re buying. The owners aren’t prepared to fix any problems discovered during an inspection. But there are different reasons for this language—it’s not always code for reno nightmare. “The term ‘as is’ can be a little ambiguous,” says Judy Forster of Forster Realty in Regina Beach, Sask. It’s typical in an estate sale or in a situation where the bank has foreclosed on a cottage. After all, “if the owners aren’t around, you can’t ask them to fix anything,” says Chris Winney, a broker with Royal LePage ProAlliance Realty in Northbrook, Ont.

15 real estate terms for first-time buyers

Other possibilities: the sellers don’t have the cash to deal with the fixes that the cottage needs, or they suddenly inherited the cottage and have no interest in tackling any renos. Or “as is” may have nothing to do with the condition, says Wayne William Heine, with EdmontonLakeProperty.com in Spruce Grove, Alta. These owners could be using the term to indicate that they want to sell the contents of the cottage too. “Some people say, ‘Hey, I just want to take my personal belongings and walk out of here.’ For buyers, that might be a good thing.” Especially if the owners leave behind a valuable comic book collection or bottles of 70-year-old malt whisky! (What? It could happen.)

A real estate agent’s tips for buying a cottage sight unseen

Still—and this goes for buying any cottage, in any condition—as a buyer, you have to do your due diligence. Get all the necessary inspections—duh—but also gather as much intel about the lot, the area, the lake, and the local politics as you can. Winney’s tips include reading at least three issues of the regional newspaper, visiting the property at different times of the day, and talking to the neighbours. “Almost anything that’s wrong with the cottage is fixable, but the environmental factors aren’t,” she says. “And if someone is putting pressure on you to make a decision, walk away. There are other properties out there.”

Got a question for Cottage Q&A? Send it to answers@cottagelife.com.

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BuzzNews (anglais) Entertainment Gossip

Selling Sunset: Heather and Tarek reveal the sex of their unborn child

It’s a boy!

It’s official, after months of trying, Heather Rae Young and Tarek El Moussa are expecting a child together.

The newlyweds revealed the sex of their unborn child in a video on socials.

It shows Tarek and Heather discovering that their baby is a boy with blue confetti. At their side were also Taylor and Brayden, Tarek’s children from a previous union.

On July 13, the couple announced the pregnancy of the American star. “Surprise! Baby El Moussa expected in early 2023,” read the caption of a photo that reveals the baby bump of the future mother.

Congratulations to the whole family!

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Cottage Life

Why you should use these paint colours in your cottage (or not)

Disclaimer: We didn’t consult any design or real estate experts for this article. That should become immediately obvious.

Thinking of selling your cottage? Thinking of renovating to sell it in the future? Then you should think about paint colours. At least, according to a new survey by real estate marketing company Zillow you should. Zillow surveyed more than 3,000 “recent or prospective Canadian home buyers” to gather feedback on their reactions to images of different rooms painted different colours. How interested were they in touring or buying the place? How much would they pay? The results were…confusing. Still, what lessons can cottagers take from all this? We’ve broken it down.

Survey says: Canadian buyers were willing to pay more—about $6,500 more—for a place with charcoal grey kitchens, bathrooms, bedrooms, and living areas. 

Lesson for the cottage owner: Charcoal grey the hell out of everything. Paint the porch grey. Paint the closets grey. Got a bunkie? Grey it up. Buy a grey dog, and include it in the listing photos.

Survey says: Even though green kitchens and bathrooms are trendy—wait, they are?—buyers would pay less for them. And don’t even think about painting your kitchen sunshine yellow. According to the results, yellow kitchens, and for that matter, living rooms, were “generally unpopular.” Well, obviously. Why would anyone pay for sunshine when they can get the real thing for free? Blue kitchens and white kitchens scored higher.

Lesson for the cottage owner: Paint your kitchen blue and white. Better yet, paint your kitchen ceiling blue with white puffy clouds, like the ceiling in the Venetian hotel in Las Vegas. You’ll be bringing the outside inside! 

Survey says: Burgundy is big in bathrooms—for people who speak French. Apparently, buyers from Montreal would be willing to pay up to, roughly, $4,400 more for places with burgundy bathrooms.

Lesson for the cottage owner: If you can’t source a paint called Burgundy, go with Bordeaux, Merlot, Berry, or, in a pinch, Maroon. Just don’t paint your cottage powder room the colour of fresh blood. That smacks of serial killer.

Survey says: Contrary to the results suggesting that people don’t like green, buyers from Calgary would pay several thousand more for a mint green kitchen.

Lesson for the cottage owner: According to Zillow, “When study participants thought the homeowner had similar tastes to them, they perceived the home more positively and were also more likely to make an offer more than $2,000 higher.” So, give prospective buyers from Calgary mint chocolate chip ice cream as soon as they enter your mint-green kitchen. Double the mint, double the offer! Unless, like many people, they think mint chocolate chip is gross because “it tastes like toothpaste.” In which case, you’ve shot yourself in the foot. And now you’re left with a mint-green kitchen and a freezer full of polarizing ice cream. Sorry.

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Cottage Life

Cottage Q&A: The definition of “cottage country”

What is considered “cottage country” around Ottawa?—Valerie Quinn, Barrie, Ont.

Well, according to Wikipedia, it’s “the Rideau Lakes area or parts of the Outaouais,” which is correct. At least, it’s been correct for a long time. If you’re asking because you’re, say, moving to Ottawa and you plan to buy a seasonal place, cottage country for you will probably depend on how much you want to spend, how badly you want privacy, and how far you’re willing to drive to get it.

“For most people, ‘cottage country’ is within a two-hour drive of Ottawa,” says Martin Elder, the owner of Martin Elder Real Estate Group. “They want lakes, not rivers. They want nature and lots of trees and no close neighbours.” But—if you’ve been reading this magazine over the last several years—you know that “cottage country” almost everywhere is evolving. “Everything is getting built up,” says Elder. Plus, supply is low and demand is high. A cottage that ticks all the boxes—the coveted two-hour drive time, lots of privacy, and the right price—is getting harder to find. 

“I say to people, ‘I’d love to sell you that, but it doesn’t exist—not at the prices we saw two years ago,’ ” says John Macintyre, a veteran Century 21 realtor based in Chelsea, Que. 

More people are moving full-time to the cottage or retiring to the cottage. “Many lakes that 25 years ago were considered cottage-only are now largely residential,” says Macintyre. (If a lake has no cottages on it, is it still “cottage country”?)

Bottom line: if availability and prices and lack of privacy push buyers to drive outside the traditional two-hour upper travel limit, and more cottagers move full-time to the traditional cottage lakes…who knows what we’ll call Ottawa “cottage country” in the future?

Don’t worry. We’ll update the Wikipedia page when the time comes.

Got a question for Cottage Q&A? Send it to answers@cottagelife.com.

This article was originally published in the June/July 2022 issue of Cottage Life magazine.

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Cottage Life

Cottage Q&A: Spring 2022 cottage real estate prices

What will 2022 look like in terms of Ontario cottage prices? —Todd R. Mcrae, Toronto

We assume that you’ve already consulted the Psychic Hotline, with dismal results. “Let me first shine off my crystal ball,” says Shawn Woof, the senior vice-president of sales and a sales representative with Sotheby’s International Realty Canada in Port Carling, Ont. What does he see? The trend that began once the pandemic ramped up is set to continue: a high demand coupled with a low inventory means that “it’s likely going to be a seller’s market,” says Woof. 

“With the arrival of COVID-19, cottage country hit the radar of people looking to get out of Dodge,” says Chris Winney, a realtor with Royal LePage Realty in Northbrook, Ont. “Suddenly, a property listed on the high side of normal was likely to be involved in a bidding war and might sell for 250K over asking.”

What with the multiple waves of COVID that followed (was it four waves? 17 waves?), even now, “people are still less likely to sell,” says Woof. “Every case is different, but it appears that those who are holding on to the cottage far outweigh those who are cashing out.” 

If you’re asking because you want to sell your place soon, high five! You can expect to get more than the listing price (within reason). But if you’re a prospective cottager hoping to buy this year, “you’ll have to be open to broadening the scope of what you’re looking for,” says Woof. You’re not going to find any deals, and you’ll need to treat the listing price as the starting price.

Still, you can’t win if you don’t try. Start the search early in the spring, says Winney. “Have your financing arranged before you begin, use a local realtor, and bring along a structural expert when you go to a showing.”

Cottage prices aren’t likely to drop any time soon. But they’re also not likely to skyrocket to infinity. Winney predicts that demand will become more moderate eventually. “So the ‘new normal’ will still be high prices, but they will plateau.”

This article originally ran in the March/April 2022 issue of Cottage Life magazine.

Got a question for Cottage Q&A? Send it to answers@cottagelife.com.