Hi - I can help here ... CRA, especially in the sale of cottages that are not the primary residence DOES focus on documentation of your ACB (Adjusted Cost Base) the the logic that applies in the Cohen case mentioned above applies in all common law based tax law.
Although receipts are Ideal, reasonable estimates are allowed, ESPECIALLY if you can show like-kind sales prices for cottages in the same region around the time you completed the work. (This is exactly what an appraiser does, compare like kind values then reduce to a square footage, and apply that that to the square footage of your cabin)
Also valuable here would be the use of (1) the property value of the land of course, then (2) a list of the materials used ... given that you did this yourself, I'd bet that you can put together a list of the materials and estimate their prices based on when you bought them ... discussions with suppliers about how prices have changed on those items over the course of the years would be beneficial ... Having this logged in writing is MUCH better than simply conveying that verbally, should CRA audit the return.
Here's an excellent checklist that might help:
Checklist of cottage ACB components and required documentation
R Original acquisition of the property
Elements from the Purchase Agreement and other costs (documented by invoices,statements and proof of payment) include:
- Purchase price of the cottage, if purchased after 1971 (contact your BDO advisor for properties owned on December 31, 1971, or if you made an election in 1994 to increase the ACB)
- If inherited or received as a gift, evidence of the value at the time of the gift or inheritance such as a valuation
- Land transfer taxes on acquisitionUtility connection costs
- Real estate commissions
- Real estate inspections
- Legal fees
- Cost of a survey or title insurance
- Other purchase agreement disbursements, other than reimbursements to the former owner for annual costs such as property taxes and utilities that were paid before closing
- Repairs and maintenance related to properties acquired in a state of disrepair. Generally speaking, it may be possible to include costs that wouldn’t ordinarily qualify in the opening ACB such as costs related to replacing a roof, buying new fixtures and plumbing, replacing flooring, etc. The key is that the state of disrepair was factored into the purchase price (i.e. the price would have been higher if the cottage was in better shape and these costs were incurred for that reason).
R Improvements not directly related to the building
Make sure you include any improvements to the land that are not related to maintaining current elements. Costs could include a new septic system, a new well, a water system etc. Also, ensure that you include any improvements to the land such as correcting drainage problems, building a driveway or right of way, pathways or fixed decks and docks. Moveable items will generally not qualify (although the definition of moveable should be carefully considered from a practical perspective). Documentation needed includes invoices and proof of payment.
Any change to the structure of a cottage that creates something that wasn’t present before will generally qualify as an addition to ACB. Documentation will include invoices (including details on the nature of the work as an improvement) and proof of payment. Examples include:
- Adding new rooms or finishing a basement
- Building a new deck or replacing an old deck with a larger deck
- Moving walls or partitions inside the structure
- Creating a new bathroom, including the cost of fixtures
R Ongoing maintenance vs. building improvements
Probably the most difficult task is deciding whether repairs and maintenance costs are an ACB addition or just an ongoing expense that cannot be included in ACB. Generally, the test is whether the structure has been improved vs. just returned to a previous state of repair during your period of ownership. A good example is a new roof. If the cottage’s roof was in good shape when you acquired the cottage, then there is a strong argument that just replacing the shingles is an ongoing cost. However, if you replace a roof with a different and higher quality type of roofing, then that cost could be an ACB addition. A key element to consider, in addition to having documentation similar to that described so far, will be whether the documentation highlights why an improvement was made. Other examples where an improvement may have been made include:
- New windows and doors
- New flooring and paneling
- Replacing bathroom or kitchen fixtures
A final note for those do-it-yourself (DIY) cottagers — you can’t capitalize the imputed cost of your own labour for a DIY improvement, but you can capitalize the cost of the materials you used for the improvement.