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.