Who this is for
- Canadian residents who own a main home and a cottage, chalet or other second home in Canada and are moving abroad
- People who left Canada and still own a Canadian cottage they may sell, rent or give to family
Not covered here
- Whether to sell or keep the main home before leaving
- The full section 116 procedure on a non-resident sale
- A vacation property outside Canada
- Departure tax on investments, shares and other property
Is my cottage taxed when I leave Canada?
No, not on the day you leave. When you emigrate, most property is deemed sold at fair market value, but real property in Canada is excluded (Income Tax Act 128.1(4)(b); CRA). The cottage keeps its original cost. The gain, less any principal residence exemption for years you lived in Canada, is taxed later when you sell it or give it away, and possibly when you turn it into a rental (see below).
The tax is deferred, not forgiven. A later sale is a sale by a non-resident, so the section 116 rules apply, and only years you were resident in Canada can count toward the principal residence exemption.
The cottage still goes on Form T1161, the list of properties, if everything you owned when you left was worth more than $25,000 (CRA). See the list of properties form.
What makes a case not simple: both homes have large gains, you sell the main home in the year you leave, the cottage is in Quebec, family will keep using it, or you may come back.
Gather now: purchase price, closing costs and improvement receipts for both properties; every principal residence designation you or your spouse have made; your departure date; and a fair market value for each property at departure.
Can a cottage be my principal residence?
Yes. A cottage can be a principal residence for any year it was ordinarily inhabited by you, your spouse or common-law partner, a former spouse or partner, or your child, and the CRA accepts that living there for a short time in the year can be enough (Folio S1-F3-C2, ¶2.10–2.11). A unit kept mainly to earn income generally does not qualify on short stays. The same applies to a condo your child lives in; see the principal residence exemption guide.
The limit is one property per family unit per year: you, your spouse or common-law partner and your unmarried minor children share one designation for each year (Income Tax Act s. 54; Folio ¶2.13–2.14). You can give some years to the house and other years to the cottage, but never the same year to both. How to compare the two in general is covered in that guide.
I'm selling the main home before I leave and keeping the cottage: how do the designations work?
Designate on the house only the years it needs, and save the rest for the cottage. The exempt share of a gain is worked out with a formula: one plus the number of designated years in which you were resident in Canada, divided by the years you owned the property (Income Tax Act 40(2)(b)).
The "one plus" exists so that a family that sells one home and buys another in the same year is covered for both (Folio ¶2.28). It applies to each property separately, and only if you were resident in Canada in the year you bought that property. In practice, a house owned for 10 years can be fully exempt with 9 designated years, which leaves one year free for the cottage.
| Rule | What it means for two properties |
|---|---|
| One designation per family per year | Each year goes to the house or the cottage, not both |
| One plus | Each property gets one extra year, if bought while you were resident |
| Resident years only | A year counts only if you were resident in Canada at any time in it, so the year you leave counts (Folio ¶2.20–2.21) |
| Years abroad | Add to the years owned but cannot be designated, so they lower the exempt share |
The trap: designating every year to the house when it is sold, then finding the cottage has no years left. The designation is made in the return for the year of the sale, on Schedule 3 and Form T2091(IND) (Folio ¶2.15). Changing it afterwards is not automatic: the CRA may accept a late, amended or revoked designation if you apply within ten years after that year, and charges $100 for each complete month it is late, up to $8,000 (s. 220(3.2) and (3.5); Folio ¶2.15.1). Plan the split before you file the house sale. The years after you leave add to the cottage's years owned but never to its exempt years, so its exempt share shrinks the longer you hold it abroad. The arithmetic for the house is in selling your home after leaving Canada.
Should I sell the cottage before or after I leave Canada?
Selling while still resident avoids the non-resident paperwork and stops years abroad from shrinking the exempt share; selling later defers the tax but adds both. A sale while you are still resident is reported on your normal return. A sale after you leave is a non-resident disposition of taxable Canadian property.
| Sold | What applies |
|---|---|
| Before departure | Normal resident return; principal residence designation; no section 116 certificate |
| After departure | Notice to the CRA on Form T2062 within 10 days after the sale (s. 116(3)), or a penalty of $25 a day ($100 minimum, $2,500 maximum) (s. 162(7)); unless a certificate is issued, the buyer must remit 25% of the price to the CRA within 30 days after the end of the month of purchase (s. 116(5)), so it is held back from you; a certificate generally requires paying 25% of the gain or giving security; a Canadian return for the sale year (IC72-17R6) |
Either way, 50% of the capital gain left after the exemption is included in income. Keeping it changes the picture if you may return or family uses it: see the section on family use below. The step-by-step non-resident procedure is in non-residents selling Canadian property.
Can I elect to include the cottage in departure tax (Form T2061A)?
Yes, it is an option. On Form T2061A an individual can elect to treat Canadian real property as sold at fair market value on departure, and then as bought back at that value (s. 128.1(4)(d); CRA).
What it changes:
- The gain up to departure is taxed on your departure return, while you are still resident.
- The cottage's cost resets to its value on departure, so a later sale taxes only growth after you left.
- The cost: any tax on the gain to departure is due on your departure return, before you have cashed anything. A later non-resident sale still needs section 116 compliance.
Because the election is a sale while you are still resident, designated years are measured against the years owned up to departure, not the longer period to a later sale. The trade is tax now on any part not covered by designated years, against an exempt share that does not shrink while you live abroad. Compare both paths with real numbers before electing.
What if family keep using the cottage, or I rent it out while abroad?
Renting it out and leaving it for family use carry different risks. Renting it brings withholding tax and, if it becomes a rental property, a deemed sale. Keeping it ready for your own visits can count against you in a residency review.
Renting it out: a tenant or agent must withhold 25% of gross rent paid to you as a non-resident, unless the CRA approves Form NR6 to withhold on net rent (T4144). Turning the cottage into a rental property is a change in use: you are deemed to sell it at fair market value and buy it back (s. 45(1)), unless you elect under s. 45(2) in your return to be treated as not having changed its use. The CRA does not apply this where the rental is ancillary to the cottage's use as a residence, with no structural change and no capital cost allowance claimed (Folio S1-F3-C2, ¶2.59). See non-resident landlords and turning a home into a rental.
Family use: the CRA treats a dwelling kept available for your occupation as a significant residential tie, and lists a seasonal dwelling in Canada as a secondary tie, weighed with your other ties (Folio S5-F1-C1, ¶1.12 and ¶1.14). Which applies to your cottage depends on the facts. See Canadian tax residency.
What tax applies if I give the cottage to my children while abroad?
A gift is taxed as a sale at fair market value. You are deemed to receive proceeds equal to the cottage's value (s. 69(1)(b)), even though no money changes hands, and your child's cost becomes that same value (s. 69(1)(c)). As a non-resident you still owe the same T2062 notice within 10 days (with the same late penalty) and a Canadian return for that year. Your child counts as the buyer: unless a certificate is issued, your child must remit 25% of the cottage's value to the CRA within 30 days after the end of the month of the gift (s. 116(5)), so apply for the certificate before the transfer.
Adding a child to the title can be a disposition of part of the cottage. Gifts and title changes are covered in transferring property to family, and gifts before you leave in giving assets to family before leaving Canada.
What should I keep on file for a sale years later?
Keep everything that proves cost, improvements and residence years, because a later sale may come long after the receipts are easy to find.
- Purchase agreement and closing statement for each property
- Receipts for improvements (not routine repairs)
- Each year's principal residence designation, for you and your spouse
- Your departure date and proof of it
- A fair market value for the cottage at departure (an appraisal or comparable sales)
- Rental records and any NR6 approvals, if you rent it
Example
These examples are illustrative and use Canadian dollars. Both properties were bought in the same year while the family was resident, and the main home is sold in the 10th year, just before departure.
All years designated to the house
The house gain is C$300,000 over 10 years. The family designates all 10 years to the house. With the one-plus rule, 9 years would have been enough, so one year is wasted.
Five years after leaving, they sell the cottage for a total gain of C$260,000. The cottage has no designated years, so the whole C$260,000 is a taxable gain, half of it included in income, on a non-resident sale with a T2062 notice.
Nine years to the house, one to the cottage
Same family, same numbers. They designate 9 years to the house (1 + 9 = 10 of 10 years exempt, so no tax on the house) and the 10th year to the cottage.
At the later cottage sale: owned 15 years, exempt share (1 + 1) / 15. The exempt part is about C$34,700, and about C$225,300 remains taxable gain.
The cottage grows faster than the house
The house gain is C$100,000 over 10 years (C$10,000 a year); the cottage gain to departure is C$300,000 (C$30,000 a year). The family designates 1 year to the house and 9 to the cottage.
- House sale year: exempt share (1 + 1) / 10, so C$20,000 is exempt and C$80,000 is taxable gain on the resident return.
- Cottage sold 5 years after leaving, total gain C$400,000: exempt share (1 + 9) / 15, about C$266,700 exempt and C$133,300 taxable gain.
Had they designated 9 years to the house and 1 to the cottage instead, about C$153,300 would be exempt (C$100,000 + C$53,300) rather than about C$286,700.
Giving the cottage to a daughter instead of selling it would produce the same gain, measured at its fair market value on the day of the gift.
Different for you?
- You have not yet decided about the main home: see keep or sell your home when leaving Canada.
- You are splitting years between two large gains, or electing on Form T2061A: the designation and the election are hard to undo once filed; get individual tax help.
- You already left and want to sell or gift the cottage: follow non-residents selling Canadian property and get individual tax help.
- You lived in Quebec, or the cottage is there: Quebec has its own departure rules and forms; see leaving Quebec and get individual tax help.
- Family will use the cottage: check Canadian tax residency and get individual tax help.
- You may move back: years spent abroad stay outside the exemption even after you return; get individual tax help.
- Your spouse stays in Canada, or you own the cottage with someone else: each owner's share follows that owner's own resident years, and family staying behind can keep you resident; see family stays in Canada while you work abroad and get individual tax help.
- Your new country taxes your gains (the US, for example): it may also tax the cottage sale, measured from your original cost and without the Canadian exemption. If you elect on Form T2061A, the Canada–US treaty lets you elect to be treated in the US as having sold and bought back the cottage at that value (Article XIII(7)); get cross-border tax help.
- Your children are US citizens or live in another country: a gift may have tax effects there too; get cross-border tax help.
- Your second home is outside Canada: see foreign real estate when leaving Canada.
- Other property you own when you leave: see leaving Canada.
Figures on this page
| Figure | Value | Source |
|---|---|---|
| Fair market value threshold for Form T1161 Total fair market value of reportable property owned on departure; the form is required above this amount | $25,000 | CRA: Dispositions of property for emigrants of Canada Checked |
| Federal late principal residence designation penalty per complete month For each complete month from the original due date to a satisfactory late-designation application | $100 | Income Tax Act, subsection 220(3.5) Checked |
| Federal late principal residence designation penalty maximum Maximum penalty when the CRA grants a late designation under Income Tax Act subsection 220(3.5) | $8,000 | Income Tax Act, subsection 220(3.5) Checked |
| Federal late section 116 notice penalty per day Applies to late actual-disposition notification under subsection 116(3) | $25 | CRA: Failure to comply penalty Checked |
| Federal late section 116 notice minimum penalty Minimum penalty for late actual-disposition notification under subsection 116(3) | $100 | CRA: Failure to comply penalty Checked |
| Federal late section 116 notice maximum penalty Maximum penalty for late actual-disposition notification under subsection 116(3) | $2,500 | CRA: Failure to comply penalty Checked |
| Federal buyer holdback without a certificate for capital property Applied to the amount by which the purchase price exceeds any certificate limit, for property subject to subsection 116(5) | 25% | Income Tax Act, subsection 116(5) Checked |
| Federal certificate payment on a capital property gain Applied to proceeds minus adjusted cost base, before selling expenses; acceptable security may be provided instead | 25% | Income Tax Act, subsections 116(2) and 116(4) Checked |
| General taxable capital gain inclusion rate General rule under Income Tax Act section 38(a); exceptions apply | 50% | Justice Laws: Income Tax Act, section 38 Checked |
| Part XIII withholding rate on Canadian rent paid to a non-resident General rate on gross Canadian real-property rent; a treaty may change the rate, and CRA-approved Form NR6 can change the withholding base to net rent | 25% | CRA: T4144, Income Tax Guide for Electing Under Section 216 Checked |
Primary sources
- CRA: Dispositions of property (emigrants)
- CRA: Income Tax Folio S1-F3-C2, Principal Residence
- Income Tax Act, section 40
- Income Tax Act, section 45
- Income Tax Act, section 54
- Income Tax Act, section 69
- Income Tax Act, section 116
- Income Tax Act, section 128.1
- CRA: IC72-17R6, Section 116 procedures
- CRA: Income Tax Folio S5-F1-C1, Determining an Individual's Residence Status
- CRA: T4144, Electing under section 216
About this guide
Published by Cloud Accounting under standing professional approval. This version has no separately recorded personal review. It explains general rules for the tax year shown. It is not advice for your situation.
Changes
- : First published.