In recent months Ken MacCoy
“They made the decision to maintain two homes – one as their principal residence and another as their vacation home,” Mr. MacCoy says.
Mr. MacCoy’s clients are among the enviable group of Canadians who are choosing to keep two homes in retirement. There are no confirmed statistics on Canadian retirees who own vacation properties in the country or abroad, but financial planning and real estate experts say this is a small but growing group.
The combination of a healthy Canadian dollar and plunging real estate prices in the United States has put a second home within the reach of many Canadian retirees, Mr. MacCoy says.
“There have been so many foreclosures down there and the prices have been so appealing,” he says. “And if you made your purchase when the Canadian dollar was worth more [than the U.S. dollar], then you would have gotten an even better deal.”
Whether they’re buying a beachfront condominium in Florida or hanging on to the decades-old family cottage up north, retirees need to consider the financial and logistical implications of owning a second home, says Michael Taglieri
There’s no question that a vacation home brings many benefits for its owners, Mr. Taglieri says. In addition to being a getaway destination, a vacation home can also be a source of income and tax savings for retirees.
“You can rent it out during those times when you’re not using it,” he says. “And because rental income is considered business income, part of your costs – such as mortgage interest, maintenance and property improvement expenses – would actually be tax deductible.”
The disadvantages? Rent money is taxable income, Mr. Taglieri says. At the same time, as the property increases in value, owners face a higher capital gains tax if and when they sell their second home.
They may be able to reduce their tax liability on capital gains from their vacation home by designating it as their principal residence, which is exempt from capital gains tax. But this makes sense only if the increase in value of their principal home is less than that of their vacation home.
Retirees with vacation properties outside of Canada could also incur tax liabilities in the country where their second home is located, Mr. Taglieri says.
“For example, if you’re renting out a second home in the United States, you would file a U.S. income tax return because you’re earning income in the U.S.,” he says. “And when you sell the property, the capital gain would be subject to U.S. estate taxes.”
Retirees need to keep in mind that owning a second home would mean a second set of costs for property maintenance, improvement and insurance, says Renee Talavera-Siao, a financial adviser at TriMonarch Financial in Toronto.
There’s also the cost of travelling to a vacation home – something frequently overlooked by retirees too excited about a good real estate deal. Ms. Talavera-Siao points to some clients who snapped up bargains in distant countries where housing markets were depressed, only to realize later it was going to cost thousands each year to fly to their vacation home and pay for out-of-country health coverage.
Investing in a vacation home could also curtail retirees’ plans to travel to other destinations, Mr. MacCoy says. To keep his own retirement travel options open, Mr. MacCoy has chosen to buy into a timeshare that lets him stay at various properties in Canada, the United States and Mexico.
