Reducing Your Capital Gains - It Pays to be Organized
December 28th, 2007Everyone knows that owning a cottage is an expensive proposition, especially because there is always a “project”on the go, or maintenance that needs to be done. Sometimes Bill and I will do the work ourselves, other times I will beg Joe Flareski or Stu (our very handy neighbours) to give me a hand. For the big jobs I will hire a contractor, like I did last summer when we installed three new solar panels and expanded our battery pack. In any case, whenever we do any work on the cabin I make sure that I stash all of the receipts in a special envelope and remember to bring it home at the end of the summer. Why? Capital Gains.
Unless your cottage is your primary residence, than it will be subject to capital gains tax, which is based on its fair market value at the time it changes ownership. There are ways to defer paying the tax, and a good accountant and lawyer can assist you with these, but at the end of the day capital gains will have to be paid.
The amount owed can be offset by improvements that increase the value or extend the life of the property.
Most renovations and upgrades are made within the first couple of years of acquiring a property; it’s important to keep a financial record, especially if you hired a contractor or third party. Their labour is deductible, mine is not. Ten to 15 years from now, I’m not going to remember how much the new dock cost, or what we spent installing the deck. Keeping a paper trail will minimize our tax bill and result in more money in my jeans, not the governments.
So for the rest of the day, I will be combing through my visa bills, highlighting and photocopying, as well as trying to track down my bill for the electrician, wishing I was better organized. I like to use the last day of the year to tidy up loose ends and get ready for the next.
Happy New Year’s
Cheers,
Julie
Email This Post
