Q: Is it possible to sell my Ontario cottage lot, buy a vacation property outside of Canada and not pay capital gains tax? I also own a home in Toronto. — Kevin
A: Kevin the short answer is: No. You cannot sell your Ontario cottage lot and avoid capital gains tax. That’s because any land or property that is not considered your primary residence is subject to capital gains tax in Canada (and it doesn’t matter where you decide to purchase/build your next vacation property).
But that doesn’t mean you’re out of options. If you owned a cottage and it’s resale price had appreciated significantly over the years, while your Toronto home’s resale value had remained stagnant or barely appreciated, it may be prudent to discuss alternating your primary residence designation between the two properties. You can do this because tax law stipulates that you can designate any regularly-used owned accommodation as a primary residence, thereby sheltering the appreciable gains of that abode from capital gains tax. That said, tax law also stipulates that only one residence can be considered your family’s primary residence in any given year. (Yes, there are nuances, such as the +1 year rule and the two homes in one year exemption, but it’s best to talk to a tax accountant if you plan on using this strategy.)
Also, keep in mind that you cannot used this strategy if there is no building on the land—and it sounds like you bought land, not a cottage. Even so, paying capital gains tax isn’t as bleak as it sounds.
For instance, if you were in a 30% tax bracket and earned $10,000 you would have to pay $3,000 in income tax. But if that $10,000 was earned through the sale of your property you would only pay $1,500 in capital gains tax.
Hope this helps.