Could selling a vacation property affect government pensions?
Q. I was wondering what would happen if I sold my mobile home this year for $100,000. Currently, I receive Canada Pension Plan, Old Age Security and Guaranteed Income Supplement benefits totalling about $1,800 a month. Would the sale affect my pensions?
A. When you sell what is known as “capital property,” you may have a taxable capital gain or loss, Colleen. Capital property includes real estate assets like a rental property, cottage or trailer. It can also include stocks, bonds, mutual funds, exchange-traded funds (ETFs) or other investments held in a taxable investment account.
A capital gain occurs when your sale proceeds exceed your purchase price or adjusted cost base. The cost of selling can reduce your sale proceeds, and acquisition or other costs can increase your adjusted cost base. In the case of real estate, common adjustments to your cost base include renovations.
Your trailer may be eligible to designate as your principal residence, and this may avoid taxation, as a principal residence is exempt from capital gains tax. It is a common misconception that only the home that you live in primarily can be your principal residence; in fact, a cottage, trailer, mobile home, or even a houseboat can be a principal residence.
Canada Revenue Agency has the following four conditions for a property to qualify as your principal residence:
- It is a housing unit; a leasehold interest in a housing unit; or a share of the capital stock of a co-operative housing corporation you acquire only to get the right to inhabit a housing unit owned by that corporation.
- You own the property alone or jointly with another person.
- You, your current or former spouse or common-law partner, or any of your children lived in it at some time during the year.
- You designate the property as your principal residence.
Since 1982, taxpayers can designate only one home for each year of ownership as their family’s principal residence. The election is made at the time of sale and reported on your tax return. Even if this mobile home is in another country, like the United States, you can still designate it as your principal residence if you ordinarily inhabit it during the year.
So, you may be able to claim your mobile home as your principal residence, Colleen, and exclude it from taxation. However, if you own other real estate, like a home you live in, a principal residence election on your mobile home may expose your other home to at least partial taxation in the future. If your home is more valuable than your mobile home, as is likely the case, that could result in a larger tax bill down the road just to save a bit of tax today.
If you do elect to declare the capital gain on your mobile home, 50% of a capital gain is taxable on your tax return. If you own the home jointly with someone else, 50% of your share of the gain is taxable on your tax return. If you have capital losses incurred on other investments for the year, or unused capital losses carried forward from previous tax years, those losses can be used to reduce the capital gain on the mobile home.