Ferries, Septic and Storm Insurance: What a Vancouver Island Cottage Really Costs Yearly

A prairie buyer who pays $800,000 for a cottage near Nanaimo can owe British Columbia about $8,000 a year for the privilege of not living in it. That's the Speculation and Vacancy Tax at 0.5% of assessed value, and it's the line most people from outside B.C. leave off their budget.

The purchase price gets all the attention. The yearly bill is what decides whether the cottage stays a pleasure or becomes something you quietly resent funding. If you have good equity and bigger goals for it, every dollar the Island property absorbs is a dollar not compounding somewhere else. So run the yearly number honestly before you fall for the view.

Check the address against the tax map. The Speculation and Vacancy Tax applies in parts of Vancouver Island, including Greater Victoria, Nanaimo, Lantzville and North Cowichan. Canadians living outside B.C. typically pay 1% a year unless the place is rented long term for at least six months. People skip this because it sounds like a tax for foreign speculators. It isn't limited to them. Over 20 years on a $1 million assessment, that's roughly $200,000 you won't get back. Some remote areas are exempt, though they usually come with lower rental demand and longer trips.

Budget for salt, not just weather. A common rule is to set aside 1% to 2% of the property's value each year for upkeep, and oceanfront often runs higher. On that illustrative $800,000 cottage, that's $8,000 to $16,000 a year. Salt air corrodes hardware, decks, railings and roofing far faster than our dry prairie air does. Owners used to winterizing pipes tend to underestimate this, and skipped coastal-grade materials turn into big repair bills later.

Price the services you've never had to think about. Many Island cottages run on septic, a private well or delivered propane. That means pumping and inspecting the septic, testing well water, and paying for fuel deliveries instead of a single municipal bill. Ask the seller for actual receipts. Then add your own travel: flights, plus BC Ferries crossings if you're bringing a vehicle over or the property sits on a smaller island.

Call an insurer before you write the offer. Coastal properties carry earthquake and storm-surge risk, so premiums usually run well above a typical prairie seasonal dwelling. Get a real quote on the specific address, and ask what the earthquake deductible is. It's often a percentage of the insured value, which can be a large number to come up with after an event.

Assume the rental income is zero. B.C. tightened short-term rental rules in 2024, and many municipalities now limit them to the owner's principal residence plus one suite. For a standalone vacation cottage, that can rule out nightly rentals entirely. Rules can tighten further after you buy. If the numbers only work with Airbnb income, they don't work. And if you do rent long term through a local manager, plan on giving up something like 10% to 20% of gross rent for the service.

Know what your interest is paying for. Borrowing against your home to buy a cottage you use personally means the interest generally isn't tax-deductible. Interest becomes deductible when borrowed money is used to earn income, which is the principle behind the Smith Manoeuvre™ for investment portfolios. A personal-use cottage doesn't qualify, so treat its interest as a pure lifestyle cost and size the loan with that in mind.

Remember the costs at both ends. B.C.'s Property Transfer Tax on purchase is 1% on the first $200,000 and 2% up to $2 million, and a new build adds 5% GST. When you eventually sell, the gain on a second property is taxable unless you've moved there and made it your principal residence, which then affects how your Manitoba home is treated.

Add these lines up for one ordinary year with no rental income. If you'd still happily pay that total for the time you'll actually spend there, you're buying the right cottage.