Written on July 11, 2013 – 7:00 am | by Steven Frye
Behind every estate plan for the family cottage, there is likely a taxable capital gain to contend with.
As I wrote in my last blog, a key to good planning and minimizing the capital gain is to capture all eligible costs (i.e. build up the tax cost base of the property) and maintain proper documentation (invoices, proofs of payment) for these costs.
What about improvements or renovations since acquisition of the property : Are they eligible costs?
It is a difficult task sometimes to determine whether repairs, maintenance and renovation costs are eligible costs (i.e. additions to the tax cost base) or just an expense. Generally, the test is whether the structure has been improved or just brought back to a previous condition of repair during your period of ownership. A good example is a new roof. If the roof was in good shape when it was acquired, then simply replacing the shingles after several years of use is probably an expense. However if a higher quality of roof shingle or new kind of roof has been installed, then it might an eligible cost.
Other examples of improvements (instead of simple repair) might be the installation of new doors and windows (with a higher insulation factor or other new features), new flooring and paneling (wood vs tiling) and upgraded fixtures. No matter what, please remember to keep all of your documents to support the cost.
For the do-it-yourself types – you can’t include your own imputed cost of labor as an eligible cost but the cost of materials and 3rd party labor can certainly be included.
Thanks for reading