Reducing capital gain tax on the sale of your holiday home

There are two types of losses associated with holiday home properties – the loss of passive activity and the holiday home loss. The treatment of such damages may vary annually, depending on the amount of your personal use.

The holiday home loss can be carried forward in each fiscal year and is used to minimize liability on income tax but does not minimize liability on capital gain tax. The loss of passive activity can be carried over each year and be used to minimize both income tax and liability in capital gain tax.

The type of loss is assessed in each tax year, based on the number of personal days spent on the property by the homeowners and / or their family and friends, where the fair rent rate has not been collected. Loss of vacation home is calculated where the number of personal days exceed 14 days or 10% of the rented days, otherwise the loss is considered passive.

For example: Mr. & Mrs. ‘owners’ rent their vacation home for 250 days. During the fiscal year, they spend 30 days on the property of which 15 days are used for repairs and maintenance and 15 days for vacation purposes. In addition, Mr. & Mrs. ‘owners’ allow friends to stay on property for a period of 7 days, during which they were not charged rent.

The number of personal days is calculated as 15 for Mr. & Mrs. ‘owners’, plus 7 days for their friends – for a total of 22 days. Any loss for the tax year would be considered a loss of passive activity – although personal days exceeded the 14 day rule, it did not exceed 10% of the rented days (250 x 10 = 25).