The Cottage Dilemma: What Should I Claim as a Principal Residence?

As our beer commercials delight in showing, there is little that is more Canadian than escaping the city to relax by the side of a lake in the fleeting summer months.

While for most Canadians cottage ownership is still an aspiration rather than a reality, the share of the population who own cottages is much greater than in other countries, and it is growing even larger with every passing year.

There are now at least half a million mid-sized cottages in Ontario alone.

At 200,000 dollars per unit (a conservative estimation), this means that the value of cottages in the province is by itself larger than the annual gross domestic product of countries like Morocco and Ecuador, and is in the same ballpark as the net worth of Apple or Google.


A nation of cottagers needs to understand the financial implications that are involved in their upkeep. The Canadian government subsidizes property ownership in the form of waiving capital gains taxes on principle residences. However, it only allows individuals and couples to designate one principle residence each.

For the large group of Canadian families who own both cottages and urban homes, this raises a very important question:

Should I claim my house or my cottage as a principle residence?

Cottage or home as a principal residence?

For those whose houses have appreciated in value far more than their cottages, the choice is an easy one: make your house your principle residence so that you do not have to pay capital gains taxes on it, and then suck it up and pay your cottage’s full tax burden (with the exception of construction and maintenance expenses, which can also be deducted from the capital gains tax). The difficulty only arises when it is not clear whether or not your city home gained more in value from the time you bought it than your cottage did.The CRA does give you something of a break in this matter, since it does not force you to choose which of your properties is your principle residence until one of them is sold.

Nevertheless, this does not necessarily make you immune to choosing imperfectly.

For example, as an empty-nester couple selling off your family home and downsizing into an apartment or condo, it may seem wise to designate your house as your principle residence. The rationale is that you and your family would be able to continue enjoying your cottage, and that by the time you finally do sell your cottage once in retirement, you would be in a lower income tax bracket.

This may seem like a great decision; however, if the price of cottage properties unexpectedly sky-rockets in the years between the selling of your house and the selling of your cottage, you may find yourself with more taxes to pay then you otherwise would have had you originally selected your cottage to be your principle residence.

The difference between future changes to both the price of property in the countryside and the city can affect your bottom line significantly.

If you’re a dual property owner thinking about selling, talk to a professional to develop a strategy that’s right for you.