If you have a winter or summer residence that lays empty during the off-season, you may have considered renting it out when you aren't using it. This can provide you with some additional income and allow others to enjoy your property while not in use. As well, having someone else in your empty home means extra security and presence when you can't be there in person. And if you have been putting off minor upgrades to the residence - painting, new flooring or appliances - you can proceed knowing that the minor upgrades will be used and appreciated year-round, and may even add to the value of your property.
A MARKETING PLAN
If you have been returning from your retreat after every summer with a great tan and stories to tell, you may have already done all the word-of-mouth advertising that you need to find someone whom you can trust to keep the place in good order.
You might also try placing an ad in a vacation home paper or website. Many people look to these so they can have the privacy of their own vacation home without the long-term commitment of buying one.
You may incur additional expenses to rent or prepare to rent your second home when you aren't using it, and you can generally deduct those that you pay ahead of time, in the current tax year, including:
Advertising. If you post rental ads in your local paper or online, you can deduct these costs.
Insurance. The premiums you pay for coverage on your second home for the period you intend to rent it out.
Services. You can deduct the costs of hydro, water and other utilities that relate to the rental period.
That said, you cannot deduct the value of your own labour, land transfer taxes, mortgage principal and penalties. As well, you will likely not want to claim capital cost allowance (depreciation for tax purposes) because this would limit your ability to designate this property as your principal residence to potentially shelter the gain on your second home in the future.
PRECAUTIONS TO TAKE
As with any rental agreement, there are a few precautions you can take to ensure your property stays in top condition - or can return to its original state should a renter be careless or have an accident in the home. These include:
Installing a safe or security closet for valuables, or removing them entirely.
Taking date-stamped "before" pictures of each room, and outside areas such as docks, garages, sheds and driveways.
Installing a lock for the pool, garage, boathouse or other risk-prone areas.
Installing a year-round security system. Some allow you to add custom, time-limited security codes so that every new tenant's access code can only be used for the period in which they are scheduled to stay.
Consulting your lawyer to draft a renter's agreement, in which the terms of the stay, costs and accountability in the event of damage or injury, are clearly outlined.
Consider working with a reputable rental agency that is well experienced in renting seasonal properties in order to rent out your second home.
Renting property in the U.S.
If your summer or winter home is in the U.S., you can rent it out as well, but be aware that there are additional requirements for U.S. tax reporting on the rental income. U.S. tax laws can be more complex than Canadian ones, so if this situation applies to you, visit www.irs.gov for more detailed information.
Finding more information
You may well be looking forward to the benefits of renting out your second home while you spend the season elsewhere. Before you begin the process, be aware of all of your responsibilities by visiting the CRA website at www.cra-arc.gc.ca and reading T4036 Rental Income Tax Guide. You can access this link by clicking on "Information for Individuals" from the left-side navigation, then selecting "Homeowners" on the left side of the page.
Above all, work with your professional legal and tax advisors to ensure that your own interests are taken care of.
This article was supplied by Colin MacAskill, CFP, CIM, a vice-president and an investment advisor with RBC Dominion Securities Inc. Member CIPF. Colin welcomes your calls on his direct line 604-257-7455.
