Tax Tip: Claiming capital cost allowance on your cottage

If you turn your cottage into a rental property, even for a portion of the time, you convert it into a business asset. You must report the rent you receive as income, but you can also write off expenses, including the cottage’s capital cost allowance.

The CCA is the percentage of the cottage’s purchase price that you can write off as a business expense each year, as the cottage depreciates.

Depending on the cottage’s materials and the date when you purchased it, the cottage typically falls into CCA classes 1, 3 or 6. Respectively, these classes allow you to write off 4, 5 or 10 percent of the cottage’s purchase price every year.

You can use the cottage’s CCA to offset rental income, but you cannot use it to create a rental income loss. It is important to note that rental income and capital cost allowance claims both have capital gains implications if you sell or dispose of your cottage.