Call Us: 905 268 0150 - Mail: amadan@madanca.com

Tax on Real Estate Sales in Canada

Ever wonder how to deal with tax on real estate sales in Canada? If you own a rental property or a real estate investment in Canada, and have sold or are thinking of selling, then it is very important that you read this article because it provides helpful tax tips that can save you $$$ thousands.

Paying Capital Gains Tax – Tax on Real Estate Sales in Canada                                                      

Capital gains tax on real estate in Canada

When selling real estate for business use half of any profit made will be taxed.

When you sell an investment property in Canada you are required to pay capital gains tax on real estate sale in Canada. ‘Capital Gains Tax’ simply means that only half of the profit (i.e. gain) the sale of your real estate investment in Canada will be taxable.

For example, if the profit (gain) is $100,000 on a real estate sale in Canada, then only half of the gain ($50,000) would be taxable at your marginal tax rate.

Profit on the Sale of Real Estate Investments in Canada

How do you calculate the profit on real estate sales in Canada?

It is a very simple formula:

Net Sales Proceeds minus the Cost = Profit (Gain).

The Net Sales Proceeds is equal to the selling price less legal fees paid to your lawyer and commissions paid to your Realtor.

The cost is computed as the original purchase price, which should be shown on your purchase and sale agreement when you first bought the property, plus land transfer tax, legal fees paid and the cost of any improvements made to the property.

What are Improvements? – Tax on Property Sales in Canada

When computing year end tax on real estate sales in Canada, you should consider improvements. Improvements increase the cost of your property and therefore reduce the gain and tax on the sale of your real estate investment.

Improvements (also know as capital expenditures) are something that better the quality of the property or extend the life of your real estate investment in Canada. For example, if you replaced the windows on your property, then that is an improvement because it has extended the life of your property. Windows usually last 10 to 20 years.

Another example of an improvement would be replacing your old gas furnace with a high energy efficient furnace. That improves the quality of your property and therefore it is an improvement.

Repairs are not improvements and they would not increase the cost of your property for tax purposes. Repairs include fixing a leaky faucet or repairing a squeaky floor board. Repairs are tax deductible as a current expense on your tax return.

Capital Cost Allowance – Tax on Real Estate Sales in Canada

If you are considering selling a property in Canada, you must factor in depreciation, also known as Capital Cost Allowance. Depreciation represents the wear-and-tear on your property and is tax deductible.

When selling depreciable assets such as real estate in Canada, the Capital Cost Allowance that you claim in the prior taxation years must be included in your taxable income in the year of the sale. This is known as recapture. For example, if you claimed $100,000 of Capital Cost Allowance in prior taxation years, then $100,000 of previously claimed Capital Cost Allowance will be included in your taxable income in the year of sale.

Remember that when selling eligible CCA real estate in Canada, the sale must be reported on your personal tax return, including the capital gain realized and recapture. Since the tax on  sale of real estate sales and rental properties can be complex, I encourage you to engage the services of a Chartered Accountant in Mississauga / Toronto. If you are in the business of selling properties, you may want to know why you are not entitled to certain deductions. Get ready condo flippers, CRA is hunting you, will tell you why you pay higher taxes when selling property.

Different Tax Structures for Selling Rental Properties

The following video will illustrate the different tax structures available to individuals in Canada when selling real estate.

In Canada there are four different business structures to sell real estate. We will discuss how each structure can save you money on taxes when selling your properties.

 

Tax on Sole Proprietor When Selling Real Estate

Sole proprietor tax on real estate in Canada

Invest in low risk properties to prevent increased liability for a sole proprietor

The first way that a rental property in Canada can be acquired is through a sole proprietorship.  This means that you, the sole proprietor, is listed as the sole owner of the property on the deed of purchase.

Buying and selling real estate for tax purposes in Canada is simple for a sole proprietor. A sole proprietor will pay capital gains tax on real estate sales in Canada of a rental property.

The capital gain on the sale is reported on Schedule 3 and line 127 of your tax return.  In addition, you must complete form T776, Statement of Real Estate Rentals annually to report the profit earned from the property.

When should you consider becoming a sole proprietor? A sole proprietorship is appropriate when the property value is low and the risk is low. The reason for this is because a sole proprietor does not have limited liability protection. This means that you, as a sole proprietor, could lose all of your assets (home, car, savings, etc.) should a tenant sue you or another party sue you.

An example of a low risk and low value property is as follows:

- A good neighborhood

- Good quality of tenants

- House price is not material relative to your investment portfolio

 Tip: General liability insurance: will protect your business from lawsuits involving injuries or damages to customers, employees, vendors or visitors that occurs on your premises. You may want to consider investing in this type of insurance in real estate since tenant issues are fairly common.

General Partnership Tax on Real Estate Sales in Canada

A general partnership has more benefits with respect to capital gains tax on the disposition of real properties.

If you make your spouse a partner in your real estate business they can share the profit or loss similar to any other partnership. In order for your spouse to qualify as a partner the CRA requires they:

- Devote a reasonable amount of time to business

- Contribute cash to purchase the business assets

Example: John and Jane are married. John sells a rental property and as a result has a taxable capital gain of $150,000.

Without Partnership

This capital gain alone will put John in the highest federal tax bracket along with what other income he may have during the year. His effective tax rate would be 46.41% on the all income including the $150,000 taxable capital gain. Without income splitting he would be taxed $69,615 for the year.

With Partnership

If John makes Jane a partner in his real estate business, then he can transfer part of the capital gain to Jane. Instead of John claiming the $150,000 by himself it can now be split 50/50. Now both John and Jane would have taxable income of $75,000. By doing this John and Jane will be taxed at a lower marginal tax rate of 32.98%. John and Jane would have to pay $24,735 and a total of $49,470.

Difference

If John and Jane enter a partnership and split the capital gain they will save $20,145 in tax. Canada runs on a marginal tax system. The more you earn the more you will be taxed. By splitting your income or capital gains, you can take advantage of lower tax rates in Canada. The example used above is fairly common with respect to tax on real estate sales.

As a partnership you will only be required to fill out your T1 Personal Tax Return and form T776 Statement of Real Estate Rentals for rental income, similar to a sole proprietor. This makes it easy and simple for tax purposes with no registration needed. However there is unlimited liability with a partnership and if sued your personal assets will be at risk.

Make sure that you are investing in low risk properties to reduce liability.

Limited Partnership

A limited partnership is a legal entity where the investors own units representing their ownership interest in the partnership. The money from investors is pooled together so that the partnership has the funds to acquire a real estate investment.

Usually the limited partners do not know each other and do not take part in the management of the real estate. The day to day activities of the properties is left up to a general partner. Theses activities include:

Tax implications for a Limited Partnership in Canada

When selling real estate in Canada through a Limited Partnership you are only liable for the amount you invested

- Collecting rent

- Paying mortgages and taxes

- Maintenance

- Repairs

- Upgrades

- All tenant management

For individuals looking for a hassle free real estate investment, a limited partnership is definitely the right choice.

Taxation on Real Estate for a Limited Partnership in Canada:

Partnerships relating to real estate sales do not pay tax in Canada. Instead, the income generated from the partnership is reported on the individual’s tax return. The CRA requires that a T5013 Partnership Information Return is filed. The return contains important information about the partnership including:

- Each partner’s share of the partnership’s income for the year (including capital gains),

- Each partner’s ownership % in the partnership,

- Capital cost allowance claimed;

Partners are required to report their partnership income on line 122 of their personal return. If they have a partnership loss it can be deducted on line 251 of your T1 personal return. Income from real estate sales is flowed through the partnership onto your personal return for tax purposes.

Income Splitting When Selling Real Estate in Canada:

Let’s take a look at the same example as above with John and Jane. Say John and Jane want to make their General Partnership into a Limited Partnership to reduce liability. The only problem is John doesn’t know who to make the General Partner. He doesn’t want it to be himself because he has the majority of the family’s assets. He also doesn’t want to put the risk on his wife or kids. What John can do is set up a Canadian corporation to be the general partner.

If John initially invests $100 of share capital into the corporation, this would be the corporation’s only asset on its books. John can then make the corporation the general partner owing 1% of the units in the partnership.

The corporation as the general partner bares most of the risk, but has limited liability protection and a nominal amount of assets (i.e. $100).  In this way, John has reduced his and his family’s liability. This is a fairly common practice in Canadian real estate as long as all the management of the property is carried on through the corporation.

Taxes for Corporations on Real Estate Sales in Canada

The main advantage of buying real estate through a corporation is the limited liability. A corporation and shareholders are two separate entities in the eyes of the law. If your property suffers a loss or a potential lawsuit occurs, then your personal assets will remained unharmed.

There are some negative tax implications when selling real estate through a corporation. In most cases there will be double taxation. When the corporation sells a rental property for profit it must pay capital gains tax.  Another incidence of tax occurs when the after-tax profits of the corporation are distributed to the shareholders in the form of dividend.  When the shareholders receive dividends, they pay tax personally.  There is some relief in the form of the dividend tax credit which can help individuals reduce their taxes payable.

Another major disadvantage of tax on real estate through a corporation is investment income tax is high in Canada. In Ontario a CCPC which earns investment income pays a combined federal and provincial rate of 46.17%.

Change in Use of Property

What happens when I convert my principal residence into a rental property?

In Canada every single or married couple can claim one house as their principal residence each year.

The CRA stipulates the ways you can change the use of your property:

1.) Convert all or part of your principal residence to a rental or business operation

2.) Change rental or business operation to principal residence

When either of theses scenarios occurs, the CRA deems you to have sold the portion of your property for its fair market value at the time of conversion, and to have immediately reacquired it for the same price. The portion deemed sold is the business-use portion or rental-use portion of your home.

If you generate a profit (fair market value price > adjusted cost base) from the change in use, then a taxable capital gain must be reported on your personal tax return that year.

What happens if you rent out a part of your home (principal residence)?

In most cases if you are still living in the house then the capital gain realized on the change-in-use from personal purposes to rental / business-purposes will be tax exempt due to the principal residence exemption.

Your principal residence is not considered to have changed its use (i.e. to a rental property) if:

1.) Rental or business property is small compared to personal residence part

2.) There is no structural changes to the property making it more suitable for business or rental purpose

3.) No CCA has been deducted on the business or rental part

If all of theses requirements are met then all of the residence will qualify as your principal residence even the rental or business part.

If theses conditions are not met when selling the property then you have to:

1.) Split the selling price between the rental part and principal residence part. CRA will allow a split by square metres or the number of rooms as long as the split is reasonable.

2.) Report any capital gains on the part you used for rental purposes. No gains will be reported for the principal residence portion.

 

Tax on Real Estate Sales in Canada

When deciding to invest in real estate, what is your investing risk tolerance?

Additionally, If you are a Canadian planning on purchasing real estate property in the United States, make sure to consult this tax guide for Canadians buying US real estate.


Also, get access to Allan Madan’s Free Report, “20 Tax Secrets on How to Beat the Tax Man,” 20-free-tax-secrets-from-allan-madan



About the Author – Allan Madan

Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation.
Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.

If you like this article, kindly +1 and follow Allan Madan on by clicking on these
two buttons.

This entry was posted in Real estate tax and tagged , , , , . Bookmark the permalink.

About the author

is a Chartered Accountant, CPA and Tax Expert and enjoys working with business owners, individuals and entrepreneurs.

58 Responses to Tax on Real Estate Sales in Canada

  1. Pingback: Tax on Real Estate Sales in Canada Accountant Mississauga | i publish news - New York

  2. Pingback: Tax on Real Estate Sales in Canada Accountant Mississauga | Mortgage

  3. Good Afternoon : )

    I live in Arvada, Colorado.

    Thank you for the useful information and facts on this website.

    I am presently carrying out a project at college and
    your content at this site really was useful.

    http://madanca.com/blog/tax-on-real-estate-sales-in-canada/ is brilliant ! ! ! !

    I’m sorry to the Webmaster plus other folks on this web-site regarding getting off topic

    I will be generating a trackback to your Website that ought to help your website rank by way of Google. I am additionally bookmarking your web site.

    Additionally I’ve identified what I feel is unsolicited advertising on this site and ask
    myself what kind of spam security you might be working with .

    Confucius Says: “The superior man understands what is right; the inferior man understands what will sell.”

    Thanks for your time

    Roselyn Palms

    • superAmin says:

      Hi Roselyn,

      Thank you !

      You are more than welcome to do so. Please be advised that you are not legally allowed to sell, publish, or reproduce this information.

      Thanks !

      The Team at Madan CA

      Unapprove | Reply | Quick E

  4. This is the only time I’ve been to your site. Thanks for sharing more details.

  5. What’s up to every body, it’s my first pay a quick
    visit of this blog; this weblog carries amazing and genuinely good material in
    support of readers.

  6. Robert Fox says:

    You explained the situation about capital gains tax on the sale of investment properties in Canada very well. I have another question for you that you didn’t address.
    I purchased the investment property (house) 2 years ago for $200,000. I sold it today for $210,000 with the help of a realtor. The realestate fee is $8500 + the lawyer fee of $1000. I improved the value of the property by replacing an outside wall with new siding and insulation for $600. I think this all adds up to more than what I got for the sale of the house. I think I am in the hole so does the government (taxman) pay me money? Can I claim my loss? If not, this isn’t fair.
    Rob at … theoldfoxx@rogers.com

    • superAmin says:

      Hi Robert,

      Thanks for your inquiry!

      Your initial adjusted cost base of your property was $200,000 and later increased by $600 because of the insulation improvements. As such for the purposes of the property dispositions, your new ACB is $200,600. Now, in terms of your disposition proceeds, it will be your initial selling price of $210,000 less any outlays and expenses, in your case the real estate and lawyer fees ($8,500 + $1,000 = $9,500).

      The bottom line is that you will have a capital loss of $100. The government will not be paying you this amount. What will happen is that this capital loss will be applied to your net capital gains for the year (if you have any). If you don’t, you can carry it back 3 years and apply it to any previous capital gains then or carry it forward for an indefinite period of time. Your capital loss carryforward amount will also be stated on your Notice of Assessment from the CRA once you file your tax return for that year.

  7. May says:

    Hello,

    We purchased a pre-construction 1 bdrm condo 2 years ago, but recently bought a 2 bdrm condo because we needed more space. The 1 bdrm condo is near completion and will be closing in a few months. But I am required to pay an occupancy fee until the closing date. If we decide to sell the condo instead of renting it, can I claim this occupancy fee as part of the costs to be deducted from the net sales to calculate the net profit?

    Thanks!

  8. Mrs.Hall says:

    I Googled “capital gains on commercial property sale” and yours was the most informative and in layman language. Still unclear about a few things but I will re-read it several times and ask our accountant, thanks for the help.

  9. Sherlynn says:

    I am a joint owner of a small condo with my mother. The condo is my residence home in Singapore. I am now married to a Canadian and have now moved to Canada (Montreal) for about 2 years. Recently, we sold the condo and I will get the proceeds of about S$300,000. Out of this amount, $100,000 will be returned to Government Central Provident Fund (money borrowed from CPF for purchase of the condo). Thus, the net cash gain is S$200,000. Do I need to pay Capital Gain Tax on this amount as this property was bought and sold in Singapore.

    If I keep this money in a joint account with my mother in Singapore, do I need to pay capital tax on it.

    Although I am joint owner of the property but my mother paid 2/3 of it. Therefore, we have agreed that she will take a higher portion of the sale proceeds. So for capital gain, how do I declare the amount received?

    Thank you

    • superAmin says:

      Dear Sherlynn,

      The gain you will have to realize in Canada is as follows: 1/3 of ($300,000 – value of the property on the date of entry to Canada). This amount will have to be included in your Canadian tax return.

      If you have any more questions, please do not hesitate to contact me.

      - Allan

  10. Dianne says:

    Hello,
    Your site is very informative THANK YOU! Can the 50% capital gain on the sale of a property be split between spouses? Ex. We have a capital gain of 200,000$; 100,000$ is taxable; we each claim 50,000$

    • superAmin says:

      Hi Dianne,

      You can split between spouses if you two are the joint owners of the property as per the purchase/legal documents.

      Usually, the gain is split between spouses based on the % of their contribution when they purchase the property. For example, if you paid $150,000 and your spouse paid $50,000 for a $200,000 property initially, then you would recognize 3/4 of the gain and your spouse, 1/4 of the gain when you sell the property.

      Thank you,

      - Allan and his team

  11. Cliff G says:

    Hello!

    i had a question here … i am wanting to sell the house im in , its really owned by my Mother and father since the title is in there names , and it was given to them many many years ago when my grandmother died.
    Ive been living in the house myself for 5 to 6 years now and was wanting to move out of Toronto and live up north.
    the House was bought 30 years ago or so for $125K … the selling price today would be around $450K … would my parents have to pay the capital gains on the house if i sold it? or is there a way to get around it?

    thx so much.

    • superAmin says:

      Hi Cliff,

      It depends on several factors.

      If during the period of time that the house was owned by your mother and father, your parents lived in the house at any time during the year (let’s say, they lived in the house every summer), then they can deem the house as their principal residence and pay $0 in taxes when the house is sold.

      However, they must have not claimed any other residence as their principal residence and sold it during the period mentioned above.

      - Allan and his team

  12. angela says:

    Hi.
    I have a question and hoping it can be answered by you.
    I bought a house but it is under my parents names because I had no income at the time but the down and all other expenses were paid by me. My husband and I live in this house while my parents live at their own house. Now I want to sell it. We bought is for $205k and we are selling it for $335k. Capital gain would then be $130k or $65k? We did change the furnance and roof and renovated worth $30k, can we deduct these expenses and can I also deduct the lawyers and agent commission?
    Please help and thank you.

    • superAmin says:

      Hi Angela,

      Although you paid all the expenses, since the house is under your parents’ name, the gain will be included on your parents’ tax return. However, your parents may be able to offset a portion of the capital gain using the principal residence exemption.

      The roof and furnace renovation will help reduce the capital gain and the expenses such as legal, commission, and land transfer tax will also be able to reduce the capital gain.

      Thank you,

      - Allan and his team

  13. Daniel says:

    Hi,

    This is some great info, thank you! 2 additional questions:

    1.) Is the borrowing cost (interest on mortgage or line of credit pertaining to investment property) deductible for capital gains?

    2.) In relation to May’s question (posted on Jan 24th) about occupancy fee.

    i.) If one does decide to rent out the property (during occupancy prior to closing), would it make more sense to offset your rental income by the occupancy fee, as rental income is 100% taxable?

    ii.) Post closing: Are condo fees and utility charges deductible from capital gains if the condo was NOT rented out?

    • superAmin says:

      Hi Daniel,

      Thank you for your question.

      1) No it is not. However, if you plan on renting out the property, then the interest can be used to offset your rent income

      2) You can reduce your capital gains by the occupancy fee

      3) You would not be able to claim full amount of occupancy fee as rental expense. Rather, the cost would be added to the cost of the property and you’ll be able to claim 4% depreciation expense on the building to offset your rental income.

      4) No but you can claim it as rental expense.

      Thank you!

      - Allan and his team

  14. Kevin Campbell says:

    I have a recreational Property in Alberta that I have held about 13 years. I now wish to sell it but obviously would like to reduce the amount of capital gains I pay. Are the property tax or utilities deductible?
    Thanks Kevin

    • superAmin says:

      Hi Kevin,

      Property taxes or utilities are not deductible from your capital gains.

      However, you will be able to reduce your capital gains by the following:

      - Any significant improvements made to the property (ie. added patio)
      - Land transfer tax
      - Legal cost incurred at time of purchase and sale
      - Commission fee
      - other

      Furthermore, you may benefit from claiming principal residence exemption on the property.

      If you need further assistance, please do not hesitate to contact us.

      - Allan and his team

  15. Roger Yap says:

    Hi, found your article to be very informative.

    For my situation, my mom and I bought a condo back in 2005 for 170k. I lived there alone for 3 years. Once I got married, my wife and I purchased a townhouse and rented out the condo. Fast forward to 2012, we sold the condo for 240k (less realtor and lawyers fees). I have the following questions:
    1) Since the condo was my principal residence between 2005-2008, can I base my capital gains on the value of the property starting 2008 instead of 2005?
    2) If yr 2008 is is allowed above, what can I use as the basis for property valuation i.e. MPAC statement or realtor sales values or other?

    Thanks in advance.

  16. Rose says:

    Hi,
    I just bought my 2nd home for $500,000.00 and we are putting in $40,000.00 dollars into renovations. We are hoping to sell it this year for $630,000.00. I just paid $8500.00 to land transfer tax and lawyer fees on top of all the renos. At the end of all this how much will I be taxed. I was told by another source that we have a certain exemption per year per lifetime….is that only if you have a business or shares????

    Thanking you in advance.

    • superAmin says:

      Hi Rose,

      Each individual (if single) can designate one property as a principal residence. You are allowed to designate only one property as principal residence per tax year. So only one of your 2 properties can be designated as principal residence during any year of ownership. If you are going to sell your 2nd home and hold on to your first home, we suggest that you designate your 2nd home as principal residence for every year since your purchased the property. This will allow you to be exempt from any capital gains on the property due to asset appreciation. This is not a lifetime exemption but your 1st home will not be allowed to be designated as principal residence for the years that your 2nd home was designated as principal residence. This means that you will likely incur some capital gains on the sale of your first property.

      - Allan and his team.

  17. Sam says:

    Hello Allan and the team!
    I have a question regarding a sale of rental property: for capital gain calculation, can i add CMHC insurance to adjusted cost base and can i include mortgage penalties and fees (for breaking the mortgage agreement) to outlays and expenses?
    Thank you very much

    • superAmin says:

      Hi Sam,

      CMHC insurance is added to adjusted cost base on disposition of rental property.

      Yes, you can include mortgage discharge fees and mortgage prepayment penalty as part of your selling costs.

      - Allan and his team.

  18. Franky M says:

    Hi Allan,

    I have purchased a new build that comes without appliances. I want to buy new appliances and install some pot lights & window treatments prior to selling. Can these purchases be included as cost? Also, can the interest on short term mortgage be expensed as well ?

    Thanks for your help !

    • superAmin says:

      Hi Franky,

      Thank you for your question. Yes, the cost of appliances and improvements can be added as cost of the property when selling in order to reduce your gain on sale for tax purposes.

      For mortgage interests, you’ll only be able to deduct it if you were renting out your property during that period.

      Thanks,

      - Allan and his team

  19. Frank says:

    Hi Allan,

    I’ve owned a house for 7 years. Half of it was rented. I lived in the other half. My accountant deducted 4% CCA of 50% of my house value every year. Now I’m selling the house. Purchased at 125k. Selling at 145k. I also own a business. I’ve used 15% of the house as my main office. I’ve deducted 15% of house expenses as office expenses. Will I owe income tax or HST to government on this sale?

    Thank you very much!
    Frank

    • superAmin says:

      Dear Frank,

      Thank you for your question. You will indeed owe income tax on the rental portion of your house. The HST will not apply on the sale of the house.

      Sincerely,

      Allan and his team.

  20. James says:

    Great article currently selling some real estate and this will definitely help save me some taxes

  21. Daniella says:

    I purchased a home 4 years ago on my own, and lived in it for a short period of time. I then got married and myhusband purchased a home on his own (my name is not on the house at all). In the interim, I’ve rented out my original property and moved into his home. I am looking to sell it – will I pay capital gains on it, since the home I am currently living in is not mine, I do not own it, the house is in his name solely?

    • superAmin says:

      Hi Daniella,

      You may be able to claim capital gains exemption on most if not all of the sale. According to the principle residence exemption from the time you got married, you and your husband can designate only one home as your principle residence. Your original home will be your principle residence up until you got married. I would designate the home you intend to sell as your principle residence after marriage because this will allow you to be exempt from capital gains taxes.

      However CRA states that you must at least maintain and occasionally live in that house. The problem for you Daniella is you have rented out the property. Therefore from the time you have rented it out, you will have to pay capital gains on that portion only. If you have rented less than a year you will not pay capital gains under the principle residence exemption. To learn more about this exemption visit: http://www.taxtips.ca/filing/principalresidence.htm.

      Thanks

      Team at Allan Madan

  22. Jill says:

    I’m about to buy my first house and was wondering if there are any tax breaks that I may be able to take advantage of? Thanks

    • superAmin says:

      Hi Jill,

      Yes there is a deduction available if it is your first home purchase. If the home is being purchased in Canada and you have not purchased a home in the previous 4 years you are entitled to a $750 deduction on your tax return. Look for the First time home owner deduction on your T1.

      Thanks

      Team Allan

  23. Jasmine says:

    Hello,

    Just wondering I am self employed and have one rental property I own. What forms will I be required to file this upcoming tax season.

    • superAmin says:

      Hi Jasmine,

      Since you are considered a sole proprietor in the eyes of the government you will only be required to fill out your rental income on line 126 and 160 on your T1 General and attach form T776. This form is just a calculation of your rental income for the year.

      Thanks

      Allan

  24. Brenda says:

    This is a very informative site and I thank you for using layman’s terms :) I do have a question though. I purchased a house about 9 years ago and lived in it for between 6 and 7 years. My common-law spouse moved in with me and we lived there together for the last 2 of those 6-7 years. He found work elsewhere and we have moved almost 1000 kms. away and have tried unsuccessfully to sell the house. It has been rented out in the meantime, and we have been renting a house in the city we moved to because we had hoped to sell ours before buying another one here. Our patience has run out though and we are now in the process of purchasing a second house where we have lived for the past 2 and a half years. So, will this mean that we have to pay capital gains on the first house when we are finally able to sell it?
    Thanks again for the info :)

    • superAmin says:

      Hi Brenda,

      Thanks for contacting me. When a principal residence is converted into a rental property there is a deemed sale on the date of the conversion. This means that the principal residence is deemed to be sold at its fair market value (as of the conversion date) and reacquired for the same amount (which becomes the new cost or ACB). The principal residence exemption is claimed to exempt the capital gain realized on the conversion from tax.

      Furthermore, when you sell the rental property the capital gain on the actual sale is calculated as the difference between the selling price (less selling costs) and the ACB.

      For example, assume that you purchased your first house for $300,000. Further assume that the first house was worth $450,000 when it was converted from a principal residence to a rental property. As a result, a capital gain of $150,000 is realized. However, the principal residence exemption can be applied to exempt the $150,000 of capital gain from tax. Also, the new ‘cost’ of the first home now becomes $450,000.

      Should you sell the first home for more than it’s ‘new cost’, which is $450,000 in the example above, the excess over the new cost will be treated as a taxable capital gain.

      Thanks,

      Allan Madan, CPA, CA & Team

      • Brenda says:

        Wow Allan, that is so helpful, and it should work out in our favor…….except that I’m not sure how we show all of this. What I mean is, we had a rough idea what our house was worth when we moved but did not have an appraisal or anything to show that. It was just a number we came to from our own research on the housing market in that place at that time and the number the real estate agent felt was a good place to start. What kind of documentation will the tax man need from us to support the numbers we use?

        • superAmin says:

          Hi Brenda,

          The CRA will require an appraisal report. This report can be prepared by your real estate agent. The report should make reference to the values of at least three properties comparable (in size, location, condition) to your property.

          Thanks,

          Allan Madan, CPA, CA & Team

  25. Jim says:

    Hi There,

    I am expecting to purchase real estate property’s in Florida. I was trying to establish a partnership so that i could potential income split the profits with my wife. After doing some research I found that I can either set-up a Limited Liability Partnership(LLP) or a Limited limited Liability Partnership (LLLP). Is this a typo? or what is the difference between the two?

    • superAmin says:

      Hi Jim,

      This is not a typo in the United States there are LLP and LLLP structures. In an LLP (limited liability partnership), the partners assume the management roles in the entity but each partner is not liable for another partner’s actions. In an LLLP (limited liability limited partnership), a general partner is not liable for another general partner’s actions and the management roles are assumed by only the general partners, not the limited partners.

      Thanks

      Allan

  26. Roxanne says:

    Hi Allan,

    I am in a predicament here, me and my husband have dual citizenship between Canada and the US. We currently live in Canada but are planning on living in Florida for a year till March 2015. We plan on renting out our home in Canada till we return. Can you please enlighten me on the tax implications for our home in Canada?

    Thanks

    • superAmin says:

      Before you leave it is important that you convert your principal residence to a rental property. When you return to your Canadian home, you won’t have to worry about a capital gain tax liability as long as you make the proper election to change use before you leave(2014). When you return in 2014 you can convert your income property back to your principal residence in 2015. By doing this no CCA would be claimed during the years you are in the states. When converting your Principal residence to a rental property the CRA designates a sale of the property at FMV and any profit made on this sale is a taxable capital gain on your income. When you return your are said to have reacquired the property at FMV and any gain on the house would also be considered a taxable capital gain.

      Thanks

      Allan

  27. Alfa liou says:

    Hi Allan,
    I have questions about to sell my commercial property.
    1, about land transfer tax and legal fees, when I add these fees to my property value, can I still make these fees as my expenses?
    2. About capital gain, when I sell this property, if I have capital gain, can I deduct from the company loses in the past years? And how many previous years of loses I can use?
    Thanks
    Alfa liou

    • superAmin says:

      Hi Alfa,

      Thanks for your question. My responses to your questions are:

      1. Land transfer tax and legal fees paid to buy an investment property should be added to the cost of the property. If they were incorrectly classified as an expense in a previous year, then the incorrect tax return should be amended.

      2. Business losses can be carried-forward for up to 20 years. Capital losses can be carried forward indefinitely. Both businesses losses and capital losses can be used to offset capital gains realized in the year.

      Please feel free to ask additional questions relating to real estate taxes in Canada.

      Allan Madan, CPA, CA

  28. Timothy says:

    Hi Allan,

    I was filing my income tax through turbo tax and cam across a Ontario Energy and Property Tax Credit. I was wondering what is this credit? and can I claim it?

    Thanks

    • superAmin says:

      Hi Timothy,

      The Ontario Energy and Property Tax Credit is designed to help low- to moderate-income individuals 18 years of age and older, with sales tax attributed to energy and property taxes they may pay.If you pay rent or property tax, you may receive a credit up to $963. For more info on eligibility please check out Finance Canada’s bulletin on the credit.

      Thanks

      Allan

  29. Lindsay says:

    Hi Allan,

    I took advantage of the home buyer’s plan in 2012 and withdrew some of my RRSPs towards a down payment on my first home. My question for you is when must I start paying back the amount that was withdrawn?

    • superAmin says:

      Hi Lindsay,

      You will have to start repayment during the second year after you made your withdrawals.You can take up to 15 years to repay the amount withdrawn from your RRSPs under the Home buyer plan. You can also repay the full amount into your RRSPs at any time.

      Thanks

      Allan

Leave a Reply

Your name and email address will not be published. Required fields are marked *

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>