declaring principle residence

QUESTION:
   I have a question about filing a "Declaration of Principle Residence"
...ie . if I have to now.
  In 1986 I started a whale-watching business out of my home (and giftshop),
claiming 25-45% of expenses, but never any capital cost allowance. In 2002,
I purchased a second home in the village, potentially to "escape" from
living in the business, possibly to rent it out (too)? I believe I qualify
to call it my principal residence (if I chose to go down this road),even if
I (only) use it the minimum amount (like a seasonal residence, ... a couple
weeks/year and the rental income is secondary to the residence use. What
does THAT mean? .... is it an amount which doesn't create a profit (over the
expenses)? .... a small profit? .... available only a smaller portion of the
season than my use?
   Next, presuming I decide to "use it" as my principle residence (I'll
likely bump up my expense claim % on the original house, but not CCA), do I
have to file a declaration of which is my principal residence now?... or
only when I sell one? To determine capital gain.
  ..... If I stop using the recreational property for seasonal personal use
in 2006 and start renting it instead (for hopefully more significant
returns), I believe I have four more years I can still claim it as my
principal residence?
thanks!
========================================
david ingram replies:
Well I never made it to XXXXXXXXXXX but do know Digby, Annapolis Royal and
have done the midnight cemetery walk at the Fort, done the Special Sewage
Treatment Plant at Bear River and the tidal power plant - (how am I doing).
And one of my best friends David Hancock of Hancock House Publishers is in
the process of publishing a book on Whale Watching on the West Coast - After
seeing your history and the Cousteau connection, etc., it sounds like you
should be contributing.
I have also gone out on a couple of Whale rides at the Bay of Bulls on the
rock and it sounds like you may have started there.
 Back to your house .
You can only have one at a time.  I looked up a picture of your home / store
and provided it is on less than an acre and you did not claim CCA as you
state, any capital gains on the land would be tax free and I would go for
tax fess status on the rest of the house as well as Saccomanno did.
If you are going to claim it tax free and I am assuming it would have gone
up more in value, then the other place is taxable.
If the new place went up more and you want to make it your principal
residence, then the first house and gift shop is taxable from the moment you
bought the second.
You can elect to rent out a personal residence for up to 4 years but during
that time, the first place is taxable.  To claim the house as a tax free
personal residence you have to declare it such with an election under
section 45(2).
The election goes with the first year you rent it and says, "I hereby elect
to treat the residence at XXXXXXXXXXX as my personal residence under Section
45(2) even though I do not ordinarily inhabit the residence.
You really need to plan this if you are going to try it.
david ingram
David Ingram's US/Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
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