While both a primary residence and a vacation home are types of real estate properties, there are some considerable difference between the two that can lead to differences in how you approach the sale of the two when the time comes. Even though they are both forms of real estate, they need to be treated differently within the market since the market for both can be drastically different. From GST on real estate and the Canadian capital gains tax to HST on property taxes, there are a lot of different facets to buying and selling property. When selling a rental property or vacation home, keep these things in mind.
Difference in Taxes
When you sell a primary residence, you are not subject to capital gains due to a principle residence tax exemption. However, if you sell a vacation home, you are going to be subject to capital gains. Any of the proceeds from the sale of a second home are considered to be profit and therefore are subject to capital gains tax. This means you will need to plan ahead to pay taxes on the sale of the property, or you will be in trouble with the CRA later.
This is because a second home or vacation home is seen as a different kind of investment to the CRA. They look at it much like the sale of stocks which means you will pay taxes on the difference in sale price from the original price that you purchased it for. When you sell a primary residence, this is not something that you need to worry about since it is not considered an investment by the CRA.
The Best Time to Sell
There may be two different peak markets for each home when it comes time to sell. For a primary home, the best time to sell is usually in the summer between the end and start of the new school year. However, you can still sell your primary home outside of this window, it just tends to be the most active time for most areas. The best time to sell a vacation home is during the peak season for the areas. If a vacation home is by the beach, then aim for the summer. If it is in the mountains of a ski area, you should try to sell your home during ski season.
Selling outside of these windows, while possible, is not very common because a lot of people do not have their mind on vacations at the beach during the winter or skiing in the summer. You will also get more for the property when you sell in peak time. Make sure you keep this in mind when you are looking to sell your vacation property so you can have success faster and the property will not sit on the market for too long.
Capital Gains, Goods and Service Tax, and Harmonized Sales Tax
Different types of properties are subject to different types of taxes, but which ones are applicable to which? First, buyers need to know the difference between the Goods and Service Tax (GST) and Harmonized Sales Tax (HST). The most important difference between the two is that HST combines GST with other federal taxes. Every province has either HST or GST, so buyers and sellers should be familiar with what is used in the province the property is in. With that being said, here are the differences between selling a vacation home and selling a primary residence.
Rental or Vacation Home
- The home buyer must pay GST or HST if the home is used as a commercial property for at least 50% of the year.
- If the property is not the owner’s primary residence, it will incur a capital gains tax regardless of any other variables.
- The home buyer will not have to pay GST or HST if the as it is not being used as commercial property.
- Homeowners selling a primary residence will not have to pay a capital gains tax.
Knowing the difference between tax requirements when selling a second home is very important for both the home’s buyer and the seller. Selling a home can sometimes be confusing with all the different laws and requirements, but this brief explanation can be very helpful.
Get the Right Real Estate Agent
Getting a real estate agent for your primary home can be easy. You simply need to find one that you can trust and that has experience. However, finding one for your vacation home can be a bit more tricky. You need to find one that has experience selling vacation homes because it is a different market with a different approach, whether it's in Tuscany or elsewhere. The key is to find someone that understands not only the vacation market for the area but the best time to list as well as information about other vacation homes in the area. This is different than a regular agent and you want to use one that can help you have the most success.
Selling your primary residence and vacation home is a lot easier said than done but if you understand the differences, you can better understand what you need.