Ask the Expert: What Counts as Capital Property?

What actually counts as capital property?

Almost anything you own that can create a gain or loss when you sell it is capital property. Land, buildings, shares, bonds, and business equipment all count, and so do cars, boats and jewellery. It can be tangible or intangible; mobile or fixed in a place. It can be something you hold onto for years or something that moves through your business quickly. If you sell it for more than it cost you, the CRA wants to know.

Do I have to report every sale?

Yes. The CRA requires you to report the disposition of capital property, though whether you owe tax on it, depends on what it is and how you used it.

What about the cottage specifically?

For the years you lived there, your cottage could qualify as your principal residence, but that designation is not automatic. If you also owned another home during those years, as most families with a cottage do, you have to choose which property to designate as the principal residence for each year, since only one property can carry that designation at a time. It often makes sense to designate whichever property gained the most value per year you owned it, since the exemption follows the years you choose, not simply the one you spent more time in. Once you start renting the cottage out, though, it generally stops qualifying for the designation altogether, since the exemption is meant for a home, not a property that is earning you income. That is why rental years are the part of this sale that will cost you, regardless of which property you designate for others.

This kind of calculation gets complicated fast, and it is exactly the sort of thing worth having a tax expert confirm before you file, since the numbers shift depending on which years and which property you designate.

For years that do qualify, gains are generally shielded from tax under the principal residence exemption. But since 2016, the CRA has required you to file Form T2091, Designation of a Property as a Principal Residence by an Individual, and report the sale on Schedule 3 of your return, even when the gain ends up tax free.

Did I need to report the rent I collected?

Yes, and that is separate from the sale itself. For the two years you rented out the cottage, the rental income you collected, minus eligible expenses like a share of property tax, insurance and repairs for that period, needed to be reported each year on the return for that year, using Form T776, Statement of Real Estate Rentals. That obligation existed at the time you earned the rent, regardless of what happens with the sale now. If that income was not reported in the years you earned it, it is worth going back and correcting those returns before the CRA catches the gap on its own.

TurboTax software can help you itemize your capital properties and claim the capital gains or losses whether you are reporting them as an investor or a self-employed taxpayer. Consider TurboTax Expert Assist if you need further guidance, and get unlimited help and advice as you do your taxes, plus a final review before you file. Or, choose TurboTax Expert Full Service and have one of our tax experts do your return from start to finish.

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Carol Catchpole, Tax Expert, TurboTax Canada
Windsor, Ontario
Carol Catchpole has been a tax expert for more than 20 years. She joined Intuit in 2023 as a seasonal Lead, moved up to Select Time Lead, and previously spent her career overseeing tax operations and training new employees and the public.