Does lot size have an effect on whether or not a cottage can be declared as a principle residence?
Lot size does affect how the Canada Revenue Agency (CRA) views principal residences. The CRA defines any principal residence as including both a house and adjoining land “that can be reasonably regarded as contributing to the use and enjoyment of the housing unit as a residence.” The CRA permits a property of up to half a hectare (about 1.25 acres) to be declared a primary residence in the majority of cases. A larger parcel will raise red flags. The taxpayer will have to demonstrate that the extra land is “clearly necessary” for use of the cottage, so a woodlot or any luxuries, such as a pitch-and-putt golf course, may be disallowed. In addition, any excess portion of the land that generates income for a property owner will also be deemed unnecessary. Land needed for a road to access the cottage, or land that couldn’t reasonably be severed or subdivided (possibly because it doesn’t meet a minimum municipal size requirement) is okay.
Any land outside the portion deemed necessary for your primary residence is subject to capital gains tax upon transfer of the property.
Related Story How do we make the cottage our “principal residence”?
Related Story Can we transfer principal residence status to our cottage?

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