Tax on Real Estate Sales in Canada Watch Video
Allan Madan, CPA, CA
Ever wonder how to deal with tax on real estate sales in Canada? Read More…
Disclaimer
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.
ABOUT THE AUTHOR
ALLAN MADAN
CPA, CA
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.
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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
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.
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!
Hi May,
The occupancy fee can be added to the cost of your condo unit when you sell the property.
Thanks,
Allan
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.
Thank you for your comment.
If you need any additional assistance, please do not hesitate to contact me.
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
Dear Sherlynn,
The gain you will have to realize in Canada is as follows: 1/3 of ($300,000 – value of the property on the date of entry to Canada). This amount will have to be included in your Canadian tax return.
If you have any more questions, please do not hesitate to contact me.
– Allan
Hello,
Your site is very informative THANK YOU! Can the 50% capital gain on the sale of a property be split between spouses? Ex. We have a capital gain of 200,000$; 100,000$ is taxable; we each claim 50,000$
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
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.
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
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.
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
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?
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
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
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
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.
Hi Roger,
1) Yes. Also, don’t forget about the +1 rule. You can read more about it at: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns101-170/127/rsdnc/menu-eng.html
2) Realtor’s estimate and comparables would work. However, when you converted the condo to a rental property in 2008, your accountant should have obtained this information from you to report on the rental statement in the tax return.
Thank you,
– Allan and his team
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.
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.
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
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.
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 !
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
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
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.
Great article currently selling some real estate and this will definitely help save me some taxes
Thanks glad to hear it will help
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?
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
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
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
Hi
I scanned through T1 for the First time home owner deduction as per your reply above but unable to find it in T1.
Could you pls tell me what line number ?
thank you kindly
Supatra
My name is Matthew and I am a Tax accountant here at Madan Chartered Accountant. Allan has asked me to reply to your question on where you can find the first time home buyer credit on your T1 personal tax return. This credit can be found on Line 369. If you are found eligible you will receive a credit of $5,000 on your return. You can click on the following link for more information on this credit http://www.cra-arc.gc.ca/hbtc/
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.
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
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 🙂
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
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?
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
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?
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
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
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
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
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
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
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
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?
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
Hi Allan, I owned 1/3 of my mother’s principal residence, she owns 1/3 and my sister owns the other third. She wants her money now!, if I buy out her third does this trigger a tax event for her or me? What do I need to do to demonstrate that the Price paid for her third is “fair”, should standard commission and fees be reduced off some appraised value (appraised values are at best guesstimates?)
Hi Mike,
If your mother lived in the home for the entire period that she owned it, she can claim the principal residence exemption on her 1/3 share, which will exempt any gain from tax. You should have the property appraised to determine a fair price for buying her share in the property. Commission fees should not affect the appraised value.
Thanks,
Allan Madan, CPA, CA
Tel: 905-268-0150
Hi Allen. I plan to housesit for a year and rent out my primary residence during my absence. What are the tax consequences?
Also, if I decided to do this for a 4 yr. stretch and the home required impovements during that time, could I claim the improvement ie) furnace or hot water tank as an expense to offset rental income. Can I deduct cost of yard maintenanc from rental income while I am away? Thanks, Duane
Hi Duane,
Thanks for contacting me. If you convert your principal residence into a rental property, there will be a deemed disposition on the date of the conversion at the fair market value of the principal residence at that time. If you lived in your home for all of the years that you owned it, then the taxable capital gain will be reduced entirely by the principal residence exemption.
During the rental years, you must file form T776, Statement of Real Estate Rentals, with your T1 return annually, and report both rental income and expenses. Repairs for the general upkeep of the property can be deducted from rental income. However, improvements (which increase the life of the property, make it better, and last more than 1 year) are capitalized to the cost of the property.
When you move back into the property, or sell it, there will be capital gains tax on the increase in the value of the home from the date of conversion (see above) to the date of sale. Improvements made will decrease the taxable capital gain. Note: If you move back in your home within 4 taxation years of renting it, you could claim a special election to treat your home as your primary residence for the 4 years you weren’t living there. This will reduce or entirely eliminate any capital gains tax.
Thanks,
Allan Madan, CPA, CA
Tel: 905-268-0150
I own a house, I bought the house across the street in 2013 for a rental property. The reno process was extreme and the whole house had to be gutted and everything replaced. I incurred a lot of expenses in 2013 for the makeover. Ive decided that the house is too nice for renters to destroy so I figure I will sell in 2014 when I complete the renos. Do I claim my 2013 expenses on my 2013 tax return, and than the rest of the expenses that I incur in 2014, after I sell? Or keep all of the expenses until I sell and report everything in 2014? Thanks
Hi Stacy,
Since you made extensive renovations soon after you purchased the home, and shortly thereafter are in the process of selling it, the profit realized on the sale will be treated as business income. Business income, unlike capital gains, is fully taxable to you.
The renovations made will be added to the cost of the property and the profit should be reported in the year of sale. Do not claim the renovations as ‘expenses’ on your 2013 return. If you made substantial renovations to the home, you will be required to self assess HST and remit the HST to the Canada Revenue Agency. For further details, please email me at amadan@madanca.com
Thanks,
Allan Madan, CPA, CA
Tel: 905-268-0150
I and my wife had real state capital gains on a property which it was under my name. We also had capital loss on another property which was under her name however I had paid all the price. Can I claim this loss against my gains. CRA says I can not.
Much thanks.
Hi Shahin,
Generally speaking, you cannot offset your wife’s losses against your gains. In the future, consider transferring property that has accrued losses to the spouse that owns profitable property with accrued gains. The property can be transferred between spouses at its ‘cost’ amount. After the transfer is made, the spouse can sell the money losing and profitable properties, and offset the resulting losses against the gains.
In your case, it sounds like my advice is too late.
Thanks,
Allan Madan, CPA, CA
Tel: 905-268-0150
Hello Allan,
Thank you for your YouTube video on real estate. I recently watched it, and I found it to be extremely informative. I am a somewhat new Realtor and I have a question I was hoping you could help me with. As real estate agent, I have to take a total of 7 courses. There are three I must take to begin selling, and three I must take in order to become a fully licensed agent. Finally, there is one more course if I wish to become a broker. I was wondering whether these educational expenses count as tuition credits, or possible an education expense on my self-employed schedule. Any insight would be greatly appreciated!
Thomas, thank you for your question. Officially, the CRA’s position is that fees paid towards obtaining a degree or professional certification are a non-deductible. However, if you are enrolled at an eligible institution you can claim the tuition tax credit. Regards, Allan Madan and Team
I wonder if you could help me. I purchased a rental property for $300,000 and had a mortgage of $250,000. I am thinking of selling the property. My question for capital gains, can I deduct the remaining mortgage as an expense?
eg. if I so if I sold the property for $350,000 could I deduct the remaining mortgage say of $200,000 before calculating the capital gains? As does the capital cost allowance get added to the capital gains? thank you.
Hi Laura,
Thanks for your question. Paying off the mortgage from the sales proceeds does not reduce your capital gain. The capital gain is computed as the difference between the selling price (less closing costs) and the amount you paid to buy the property.
Thanks,
Allan Madan, CPA, CA
Tel: 905-268-0150
Hello Allan,
My dad lives in Brazil, but he is thinking of gifting a property to me. I am a Canadian resident. Does he have an obligation to apply for a clearance certificate? Or, does he figure out the fair market value of the property and file his return later? If he ends up not paying any tax on the property, would I as the recipient have potential tax liabilities?
Hello.
At the time the gift is given, the CRA will deem the non-resident to have gifted the property at its fair market value. At this time, section 116 of the Tax act will apply. The section states that the person receiving the property has to hold 25% its fair market value unless the non-resident provides a clearance certificate.
The clearance certificate can be obtained from the CRA.
Regards,
Allan Madan and Team
Hi Allan.
Lots of good information, thanks. My wife and I are considering selling a rental property that we have owned jointly for the past 17 yrs. We are considering carrying the mortgage as well. Would we have to pay all the capital gain up front or can we pay it yearly as we receive our payments. I realize that we have to pay tax on the interest that we receive but was wondering if it is possible to pay capital gain each year on the portion of the principle that is a capital gain.
Hi Howard,
Thanks for contacting me. You can claim a capital gain reserve to defer paying capital gains tax for up to 5 years, where you do not receive the entire proceeds in full from the buyer upon the closing date. As payments are made (excluding interest), you must include a capital gain in your income for the year. The amount to include is calculated as: cash received in the year / mortgage receivable x Capital Gain.
Thanks,
Allan Madan, CPA, CA
Tel: 905-268-0150
Hello.
My wife and I formed a numbered company with my parents. We bought a holding property a few years back, for $800,000. This summer, we sold it for $1,600, 000. We reinvested it in a 1/3 share of a franchise hotel being built. Can we re-invest the capital gains and principal into a new entity without being taxed? If not, what is the best route to avoid the most amount of tax?
My wife and I also sold our principal residence for $116,000 profit. It is a personal property, and not part of our business. Therefore, we are looking at around $516,000 in capital gains taxes this year.
Hello,
In your situation, it would be the company that is liable for capital gains tax. There is no provision for rollover in Canada, unless the property is taken for the public good. Your personal property would not be taxable, as you have described it. The only easy method of negating the tax for your gains within the company would be to buy flow through shares, or a mutual fund of flow through shares.
Regards,
Allan Madan and Team
Hello.
Four years ago, I bought a limited partnership land investment through Walton International. Originally, it was worth around $20,000. It is now ready to be cashed in at around $55,000 for a profit of $35,000. I paid for it outright when I bought it. Is there anything I can do to limit the amount of capital gains tax I pay?
Hello Bala.
First of all, I would determine the amount of capital gains you are liable for. If you received any income in the time between buying and selling the property, the capital gain may be more than you think. I would examine your T5013, T3, or other information slips you receive. Look to see if there is a Box 42 or other notation amount showing “return of capital”. If there is, the “return of capital amounts” has to be deducted from the $20,000 you paid. This would increase your capital gain.
After that, one-half of the gain is taxable on line 127 of your return. A simple way to avoid this is to buy an RRSP for that amount, given that you have any room left. To determine this, look at the bottom of last year’s Income Tax Notice of Assessment or call the Canada Revenue Agency TIPS at 1-800-267-6999. The RRSP Deduction Limit service is available from the middle of September to April 30.
Regards,
Allan Madan and Team
Is there a complete list of what constitutes as a “capital expenditures” somewhere? I’ve had a few properties that I’ve been renting out for years that were in good condition, but recently sold them. I’ve never had issues with tenants but I’m looking at new properties to buy now and the seller has let it be known that the properties need improvements as per the tenants’ request. I really don’t mind making those improvements but would like to know where to start, and a list would be quite helpful.
Hi Manny,
Hi, although there is not an exhaustive list of what is capital expenditure and what is repairs, I would consult here: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/rntl/crcp-eng.html. It really is up to judgement and as such, we highly recommend that you retain a competent tax professional to help you made that judgement.
Best Regards,
Hi Allan.
We are planning to move into our rental property, which we have owned and rented for approximately seven years. We would like to build a new home. How long you have to live in your rental property to avoid paying capital gains?
Hello Maya.
Moving into the rental property will trigger a deemed disposition and thus taxable capital gains. Officially, this is known as a “change of use”. Assuming you rented it out immediately after purchase, the gain would be the difference between the ACB (adjust cost base) and the value when you move into it. Assuming that the value of the property increased, you cannot avoid capital gains from the period you rented out the property.
Regards,
Allan Madan and Team
Hello.
I bought a duplex in May of this year. The apartment portion of the property hadn’t been upgraded in 20 years, so I updated it with a new kitchen and floors. It originally had hardwood floors that were very worn out and rotten, so I updated them. I also put in new appliances, and am thinking of putting in a new toilet. Do these count as a current or capital expenses?
Hello Myghal,
You are on the right track. Repairs or maintenance that are integral to the property can be considered current expenses. Therefore, your replacement of the hardwood would be an expense if it is restoring it to its original condition. Anything not integral to the property, such as a new appliance, is a capital expense. The new toilet would most likely be a capital expense. A material improvement of property beyond its original condition is a capital expense. Your addition of the toilet would be a capital expense.
Based on your information, I believe most of your renovation is a capital expense. If you are going to deduct the flooring, be sure to show that they were falling apart and you are replacing them in the name of safety.
Regards,
Allan Madan and Team
Hello.
I recently bought a property with a group. I plan on building a cabin on it for myself. I will not be renting it out. When my share of the property is eventually disposed of, I know that I will have to pay capital gains. I have the cost of initial purchase. What additional costs and expenses can be recorded to increase my adjusted cost base? Is there anything that cannot be added?
Hi Janina.
Only the building of the cabin and certain upgrades thereafter can add up to the adjusted cost base. Maintenance is not included. Things like property taxes and utilities would be considering operating costs. These could be offset if there was rental income with the prospect of making a profit, but not in this case.
Regards,
Allan Madan and Team
Hello.
My mother is remarrying, and will be moving in with her new husband. She has decide to give my sister her old house, which is valued at $80,000. My mother purchased it for $73,000 about three years ago. My sister is going to be living in the house as her primary residence. What are the tax implications in this situation? What is my sisters cost base?
Hello Gina,
If it was her principal residence, there should be no tax implications for your mother. This is because she can use the principal residence exemption on any property gains. You sister’s adjusted cost base will be the fair market value at date of transfer. All of the regular costs and taxes that would happen during a regular sale will apply here (i.e. agent fees).
Regards,
Allan Madan and Team
?
Hello.
I have a cottage that I rented for a year. I am thinking of selling my home, and moving into the cottage permanently. Regarding capital gains, how long do I have to live there before I can sell the cottage without capital gains?
Hello,
You won’t be able be to claim the principal residence exemption for the years you did not live in the cottage. You can only claim it for the years you lived in the cottage as your primary residence.
If you convert the cottage from a rental property to a personal one, there will be a deemed sale of the property for tax purposes. The “sale amount” will be equal to the fair market value of the cottage at the time of conversion. This could result in a capital gains tax.
Regards,
Allan Madan and Team
Hello,
I am aware that if a rental property becomes a primary residence, there is a deemed sale on the conversion that may result in capital gains. I only own one property, but do not live in it. I am a renter myself, living in another town. Would I have to pay capital gains in this instance, considering I do not own my current residence?
Hello Bianca,
If you have never lived in the property, but are thinking of doing so, you need to determine the “fair market value” of the property. In your instance, you want a value as low as possible. Be sure to get the house completely appraised and inspected before you convert it. You may also want to hire a real estate agent to give you the market conditions.
To determine if there is a capital gain, take the current fair market value and subtract it from the price you bought the house for. If you bought it for 160K, and it’s value is 190K, then your capital gain is 30K. From this gain, you get to subtract an costs you incurred. This includes legal bills, land transfer taxes, appraisals, and capital improvements to the property that were not previously expensed. This portion is known as your adjusted cost base. If this totalled 15K, then your capital gains would be 15K (30K gains – 15K of costs). Your resulting tax would be half that (7.5) times whatever the tax rate is for your income level.
Regards,
Allan Madan and Team
Hello.
I have bought and rented out a condominium unit as an investment. Now, I am thinking of selling it. Can I claim the condo’s tax assessment bill as an expense against the capital gains? I have also sold some shares that have dropped in value, can I use those to offset capital gains?
Hello.
Unfortunately, you cannot claim the tax assessment bill against a a capital gain. You can only claim deductions against business income, or expenses against annual rental income. If you want to reduce your capital gain, you need a capital loss. Fortunately, those stocks that dropped in value do count as a capital loss – use those to offset your capital gain from selling the condominium.
Regards,
Allan Madan and Team
Hi.
I own a duplex, and live in one part of it and rent the other. I understand that I can’t claim CCA on the house and continue to have the capital gains exemption. However, I bought a new kitchen and performed various other upgrades. Could I claim CCA on that and not lose the capital gains exemption?
Hello Hendrik.
If you own a duplex, only part of it is eligible for the principal resident exemption. The rental part of it is subject to capital gains. When it comes to selling, you split the selling price and the adjusted cost base between the part you lived in and the part for rental. You can do this by square meters or the number of rooms, as long as the split is reasonable. Report only the gain on the part used to produce income.
Upgrades like a new kitchen have to be claimed via the CCA process. These shouldn’t affect the capital gains, unless you sell the rental. If you claim CCA on the property structure itself, you will face CCA “recapture” when it comes time to sell. I would not recommend claiming CCA on the whole property.
Regards,
Allan Madan and Team
My uncle recently passed. Through his next of kin, I found out he left me his cottage in Northern Ontario. As a student, I am new to financial management. What tax implications will this have on me? Am I responsible for paying taxes on the property, even though my uncle gave me it as an inheritance?
Hello.
When someone dies, the CRA considers the property to have accumulated all necessary gains and losses. They will also consider the property sold right before the person’s death, at the fair market value. They call this a “deemed disposition”. Anyone who receives the property will also have obtained it at the same fair market value.
Having said that, you do not pay taxes on the property when it is transferred to you. Your uncle’s estate will pay the taxes, and you will be responsible for the property afterwards. Unless you make it your primary residence, you will likely face capital gains taxes. Therefore, you should find out the property’s fair market value to get a clear picture of the gains you will face.
Regards,
Allan Madan
I have a unique situation that I was hoping you could help me with. I own a home and have one commercial property that I am planning to sell. But I recently inherited a 3rd property when my sole parent passed away. Would I still have to pay capital gains on this 3rd property?
If you choose to sell the third house that you received, you would need to pay a capital gains tax on the property. As such, you would be paying capital gains tax on both properties. Depending on when your parents put your name on the title of the house, you may only have to pay a small amount in capital gains tax on this third property. This is because capital gains taxes are only calculated from the point of inheritance to the point of disposition. So if your name was put on the title of the house years ago, then you will be paying more in the capital gains tax. You can lessen this amount by selling the third property more quickly.
Allan:
Our corporation bought a vacant land, its only asset, for investment purposes. How are the realty taxes treated for tax purposes?
Are they capitalized and added to the ACB, and if so do I have to file a Balance Sheet with the zero return?
Regards!
Hi Norm,
In short no you cannot deduct interested on borrowed money you used to pay for child care expenses. Interest can only be deducted if the its purpose was to earn income.
thanks
Hello Allan,
I am a dual citizen of Canada and the United States. In 2013, I sold a Canadian property. I deposited the proceeds of the sale into a Canadian bank account. The property was never rented, and there was no capital gains arising from the sale. Is it a requirement to record the sale while filing my 1040, or anything relating to the funds from the sale?
Hello,
First of all, make sure you are properly calculating gains/losses on the property. You would take the profits in 2013 US dollars vs. the fair market value at the time you sold the property. Where money is earned, kept, or deposited, it should all be reported on 1040. If you took a capital loss on the property, you should report it so you can use it for future gains. Report the sale on the 1040 in order to prove the transaction produced no taxable income. Although they may communicate, filing something with the CRA does not satisfy any IRS requirement.
You must still report the proceeds of any sale, barring IRS exemption.
Regards,
Allan Madan and Team
Hello.
I am thinking of selling one of my condominiums to reinvest in another property, for $120,000. As I took amortization to reduce my taxes, my accountant tells me that I would have over 25K in capital gains. My real estate agent tells me that I can avoid this by reinvesting in another property in the calendar year. Who is right?
Hello,
I believe you are mixing two different concepts. One is the recapture of CCA claimed on a building, and capital gains. Let us say that you own a property and you have taken a capital cost allowance against the property during your period of ownership. When you sell the property for an amount equal to or more than its original purchase amount, you are required to report the CCA claimed to date as income on your tax return (aka ‘recapture’).
You can offset the recapture of CCA by acquiring identical assets in that CCA class, which offsets the recapture on the original property. This is a totally separate matter from capital gains.
?
Regards,
Allan Madan and Team
Hey.
My father inherited two pieces of land that adjacent to his primary residence. Essentially, they are now part of his primary residence. They are assessed at $15,000 together, and are selling for the mid 40’s together. Will my father be charged capital gains? If so, how does he calculate it?
Hello,
This depends on a number of factors. One of them is whether the land is more than half a hectare. If yes, then the excess usually cannot be excluded through the principal residence exemption (See the CRA folio: http://www.cra-arc.gc.ca/tx/tchncl/ncmtx/fls/s1/f3/s1-f3-c2-eng.html#N106C9).
If it is less, there is still consideration of whether the two parcels of land can be considered the same property as the principal residence. Just because they are adjacent does not necessarily make it true. You may have to look into rezoning and legal property definitions may be required to legally make it one property.
If the properties do qualify for the principal residence exemption, no reporting is required. Do not assume that the CRA will not know about the sale of the property. There have been cases where the CRA has come back several years later with large tax payments due. If they do not qualify, your father will need to report the gains on his tax return. It would be reported on schedule 3 of the tax return in the year he sold the property. Unless tax elections were made, the cost of the property will likely be at fair market value.
?
Regards,
Allan Madan and Team
I have a rental property that gives me a net return of just over $600/month. My ROI is basically 100%, because I refinanced a year after purchasing it and recuperated my down payment. If I were to sell it, I would profit about $120k today. Should I stick with the rental, or sell and invest my profits?
Hello.
If you property is fully financed, then your ROI is technically infinite. None of your money has been invested. ROI is return on investment, so you take profits/invested amount ($600/0). If you sell, you will need to claim the capital gains, so you will have closer to $90,000 to invest. Also, about half of your mortgage payments are going towards principle.
As rents generally keep up with inflation, I would suggest keeping your rental.
Regards,
Allan Madan and Team
Hi.
My wife and I purchased a second house several years ago. We bought it for the purpose of selling it later, hopefully earning a profit. We did not rent it out. When I bought it, I was not aware of the requirement to pay capital gains upon selling the property. Do I need to pay capital gains, and if so, how much?
Hello,
You will have to pay tax if you sell a house that is not your primary residence. The capital gain will be equal to the amount you sell it for, minus the amount you paid for and expenses. You will then end up paying income tax on half of the capital gains. This PDF from the CRA may also help: http://www.cra-arc.gc.ca/E/pub/tg/t4037/t4037-13e.pdf.
Regards,
Allan Madan and Team
Hello.
I am a 22 year old recent graduate of the University of Toronto. I make 40k consulting for a small IT company in Ontario. I have no savings, and 15k in student loans that I am paying back aggressively. I will be putting away $100 a month into a savings account for emergencies.
I have begun looking for apartments, and I have noticed that many landlords own more than one property. They, in turn, rent out rooms to students every year. Where I am currently, the apartments go from $400-$750 a month. They are 3 to 4 bedrooms. There are a lot of universities/colleges in the area, so there is quite a demand. Should I buy myself a house and live in one of the rooms? How does this work? If I did, it would be after paying off OSAP.
Hello,
The housing market isn’t in a great place to do this right now. Without a down payment, you cannot really start doing this. You can get a down payment for one house with a 30 year mortgage, use the rent to pay bills and save up for a second down payment. For the first while, you need to pump money into this system to make it work.
Realistically, you would need $25K to start this and you would be taking a tremendous risk in the current housing market. It’s a ton of work, and the risk has never been greater. Instead, I would rather you start saving. If you would like to go over some strategies, I would be happy to meet with you over e-mail, in person, or the telephone.
Regards,
Allan Madan and Team
Hello,
I just bought a property. I will not be living there for the first 2-3 years, but I will be renting it out. Can I use incentives like the home buyer’s tax credit on it? Is the 5% down payment legitimate for this property?
Hello,
A qualifying home is generally considered to be a housing unit located in Canada that the individual or individual’s spouse or common-law partner intends to occupy as their principal place of residence no later than one year after its acquisition. This is a according to http://actionplan.gc.ca/en/initiative/first-time-home-buyers-tax-credit.
Considering it will not be your primary residence, you will not be eligible. In addition, the CRA will flag the sale of the property as capital gains and tax you accordingly.
Regards,
Allan Madan and Team
Hello,
I bought a pre-construction home in 2012 for around $250K. I moved in 2013, and only stayed for about a month before realizing the city was not for me. I then rented it out. Now, I am thinking of selling. Can you tell me what the capital gain would be calculated it?
Hello,
Your adjusted cost base will be what you paid for the property, plus any money you put in that increased its value that you were unable to claim as a tax deduction. Examples of this include appliances, painting or other renovations, repairs, etc. Also, add on realtors fees and inspections related to the sale.
Your capital gains will be the difference between the sale price and the ACB. For more information, please visit http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns101-170/127/gns/clclt/menu-eng.html. Because you also lived there, you may be eligible for the principle residence exemption for a portion of your gains. If you have any further questions, please don’t hesitate to contact me immediately.
Regards,
Allan Madan and Team
Hello,
I’m currently in talks with my son about whether he should rent an apartment or I should buy one and have him pay me. I understand that it is not my principal residence, so I would have to pay capital gains on sale. Is this correct?
He can afford monthly payments but does not have anything close to a down payment. He is single, 30 years old, and has missed some credit card payments. I am currently just checking what the options are.
Hello,
You are correct, in that the principal residence exemption does not apply here. You would have to pay capital gains tax if the property increased in value from when you purchased it. If you can gift your son a down payment and he can make monthly mortgage payments on his own, you would be giving him an enormous leg up in life while still making him work for it.
However, consider this. Do you want to support him? It may be easier to subsidize him if you own the property and let him stay there at below-market rents. But, that may cost you more than just letting him rent somewhere and writing him a cheque. And if you don’t want to support him, then just let him rent.
Giving him a down payment would be more straightforward than other options; him renting on his own the most straight-forward.
Regards,
Allan Madan and Team
Hello, I bought farmland 2 years ago as an investment for $100000 and am now selling half of it for $150000. (Fair market value of each half at the time of purchase was $50000. (It was already subdivided). On paper this is a $100000 profit, however, I am not receiving the full amount, as I am carrying a mortgage at 5% for 2 years, or until the buyers can sell their farm and pay me the full balance. ( I have received a $15000 down payment and monthly payments are $800) My 2 questions are
1. how do I report the sale to CRA as at this point there is no profit and wont be any profit until I receive the full amount. (IE, so far I have invested $100000 and by the end of this tax year will have received $15000 plus the 5 months of $800 payments)?
2. Do I wait to report the profit until I actually receive the full balance owing (the thought being if the buyers default and don’t actually pay me anymore, I will have payed tax on money that I did not receive)
I understand that CRA will likely rule this as business income and not a Cap Gain and am trying to prepare for that. Thank you so much.
John
Hello John,
There can be many things to consider here.
1) Are you in the business of purchasing farmland and selling it thereafter? Doesn’t seem like it. The CRA will look into many factors to determine whether or not it will be either a sale of capital property (capital gain), or business income. Based on the information provided, it seems like it will be a capital gain, since this is a sale of a capital property, but we say that based on limited facts.
2) If this is a sale of qualified farm property, you may be eligible to use the lifetime capital gains exemption to completely eliminate the capital gain on the property.
3) If this is a capital gain that must be recorded and paid tax on, then you may be eligible to defer the recognition of the capital gain to the proportion of the proceeds that you receive. You can only do this for 5 years, however.
There is a lot more to consider, but the above three points should give you a good idea as to what to look into.
Hello! I recently won a home in a regional lottery. I already own a home and do not intend to move into the house I won. What are the tax implications if I want to sell the home I won in the lottery?
Hi, if you decide to sell the home you won, the CRA will calculate your capital gains based on the difference of the market value when you won the home, and the market value when you decide to sell. The longer you wait, the better chance you’ll owe capital gains tax.
Hello,
I am a father of two with a wife. I am currently thinking of selling our first house, in order to move to a better part of the city. The house was gifted to us by my now-deceased parents. I have recently consulted a real estate agent concerning this matter. They have encouraged me to underprice my home, to start a bidding war in order to obtain the best price for my home. What are your thoughts on this matter? Also, my real estate has told me they will be taking a commission of 5%. Is this a lot?
Hello,
As a seller, I believe you should encourage a bidding war. The auction process is part of the price-discovery process. Auctions are part of many different industries, such as the US treasury market and agriculture industries. Underpricing can help you create additional buzz for your property. In terms of commission, 5% could be a lot depending on how much you’re selling your property for. It might be worth your while to consider writing the real exam yourself. You’ll be more motivated to sell if it’s your own property, and you may be able to turn real estate into a career if you enjoy it enough.
Regards,
Allan Madan and Team
Hi, I want to sell the property I use to farm. I want to buy more land out west to start a similar farm. Are there any tax implications that I will face if I go through with this plan?
Hi Joss, in this case you can postpone a capital gain to your income. The CRA calls this “replacement property” which means you can defer tax on the income of the sale of your farm if you reinvest in the same or similar business within a reasonable amount of time. If you want to learn more about this topic, you can read this article: http://www.cra-arc.gc.ca/E/pub/tp/it259r4/it259r4-e.html
Hello.
My parents have recently retired, and they are moving to the Bahamas. They are giving me their condominium. I am thinking of selling it, as I have no use for it. My question is this. What is realty tax? Is it the transfer tax when you buy property, the municipal tax or both?
Hello,
Realty tax means the property tax that the city collects from each property. This is a municipal tax, and it goes towards paying for schools, roads, and infrastructure. You could classify this tax either residential (houses) or commercial (business buildings). The latter could also include a business improvement tax.
Regards,
Allan Madan and Team
My partner and I own a house in Milton (worth $203,000.00), and we have moved to a rental house in Oakville. My mom has owned the house for over 30 years. My plan is to keep our Milton house, and then purchase this house from my mom next year.
We tried to consolidate some of our bills this year, but we were turned down because our debt ratio is too high. We owe approximately $100,000.00 in consumer debt, and we have about $10,000 equity in our Milton townhouse. Would you recommend that we sell our Milton townhouse so that we can lessen our debt ratio? Or, should focus on paying down our consumer debt over the next year?
Hello,
The first thing for you to do is figure out why you’re racking up so much debt. No amount of asset liquidation (i.e., selling your house) is going to help you till you stop spending money. Secondly, I have noticed you have almost no equity in your home. By the time you sell your property, your costs will more than exceed your profits. The fact that you have been turned down for a consolidation loan should have been a wake-up call for you.
I suggest you get on a budget where you are not spending more money than you make. To get your $100,000 in consumer debt paid off in three years will cost you almost $3,000 a month. If you would like to further discuss your situation, I would be happy to assist you.
Regards,
Allan Madan and Team
Hello, I just received a job offer in Quebec on a 3 year contract. I currently live and own a home in Ontario. I want to rent a condo in Quebec, but I also want to keep the house in Ontario as I believe the value will keep going up. I bought it at $300,000 in 2010, right now it is worth $450,000 and I expect it to be valued at $550,000 in 2017. I was wondering what the tax implications would be if I rented out the house in Ontario and also rented a condo in Quebec.
Hi, ordinarily, when you move back into your Ontario home, there would be a deemed sale for $550,000. The increase of the $100,000 in the three years would be treated as a capital gain, half of which is taxable at your marginal tax rate.
To prevent this, you should file an election pursuant to section 45(2) of the income tax act, which will allow you to claim your Ontario home as your primary residence even if you move out and rent it. When you move back in in 2017, you have to attach the election from with your tax return for that year.
By filing the election your Ontario house will be treated as your primary residence for the years that you moved out and you will not be liable for any capital gains tax. Plus, you can claim the principal residence exemption for all years you reside in the house until you decide to sell.
Hi, I have a house that I would like to sell to my son at a discount. The property is worth $100,000 (I bought it at $50,000 many years ago) and I want to sell it to my son for $60,000. Is there any downsides to selling the property at a discounted rate?
Hello Antoine, it would be wise to not sell the property at a discounted rate to your son. If you sell the property worth $100,000, you will have to pay taxes on a $50,000 capital gain. Your child will receive the property with a cost base of $60,000. If he eventually sells the property for $150,000, he would face the taxes payable on a capital gain of $90,000.
Instead of the discounted sale, you may want to consider selling the property for the full $100,000. You can set it up so that your son pays $60,000 in cash, then set up an I.O.U or a loan for the remaining $40,000. You could also gift your son $40,000 to pay off the remaining amount. With this scenario, you will still have to pay taxes on the $50,000 capital gain, but at least your son will have a full $100,000 cost base.
Hi, I was wondering if it is a good idea to invest in real estate with excess money in my RRSP.
Hello Lanny, if you understand how to invest in real estate and have RRSPs in your portfolio, you could consider a higher-interest-rate first and second mortgages. The process is very simple. Find a bank that allows you to open a self-administered RRSP and is willing to act as a trustee for you to make second mortgages from your RRSP.
Keep in mind that RRSP mortgages should be understood as financial transactions backed by real estate security. If you use your RRSP to invest this way, develop an exit strategy. You need to know three things:
• How will you get your money if the borrower stops making payments?
• Can you sell your mortgage to another party if you need cash?
• What happens when the term on the mortgage expires? Is there an instant renewal or are you paid off?
There is obviously some risk involved with having higher-interest-rate earnings. Remember to do your due diligence on the person to whom you are lending money. The most important thing to remember is that an RRSP mortgage is a complex investment strategy and there can be major tax implications if it is not done correctly. Before you decide to invest with an RRSP mortgage, make sure you talk to a real estate or accounting specialist.
Hi,
I owned a house for about 5 years and we sold it about 5 years ago. My fiancé never owned a home. are we eligible for the first time home buyer tax credit in Ontario?
The eligibility of your question is based on whether or not you both are considered spouses. Because you have not owned property while with your fiancé, you are clear to apply for a first home buyers credit. The second factor is that you and your fiancé qualify as common law spouses or if you two marry before buying the property.
Hello, I have sold some investment real estate (October) and will now have to pass some capital gains. When do I pay these capital gains? The capital gains amount is around $45,000. Are they due immediately or are they due on April 30th? Thanks Ralph
Hi Ralph,
Only half of the capital gain of $45,000 is taxable. The taxable portion will be included in your income in the year the gain was realized, and will be taxable at your marginal rate. For example, if your marginal tax rate is 40%, you could expect to pay $9,000 in taxes in respect of the capital gain realized ($45,000 x 50% x 40%). The taxes are due upon filing your tax return, i.e. April 30.
Hi, I am planning to start real estate investing soon to hopefully make more money. I was wondering if it is smart to open a new bank account for the investments, or can I just use my current bank account?
Hello Kathleen, many new investors think that tying their personal and investment bank accounts together, so that they only get one statement to review. However, this would probably be the worst thing to do! While you may need to be able to transfer money into your business account from a personal account, keeping a single bank account will cause confusion over whether certain transactions are for business or personal purposes.
You should open a separate bank account for all of your real estate investment business transactions. This makes it easier for you to track money in and out, helping you make better business decisions and keeping the CRA at bay.
Also make sure you can transfer money in and out with ease. If you need to meet an expense and there is a shortage of funds in the business account, you need to be able to transfer money into that account easily.
My husband and I own a rental home in Quebec. We are going to separate and were looking to sell the house. The problem is the tenant we are currently renting to has 10 more months left on the lease. Is there any legal way to break the contract with him? Or do we have to wait until the lease expires?
Hi Mia, the only way to get him to break the lease is to offer him some financial considerations. The rule of thumb is usually three months’ rent. If he does not accept any financial offers, you will have to give him six months’ notice stating that you will regain the house for you own use. Make sure you contact a real estate expert to make sure you have all the information you need.
Hi, quick question: I have a statement of adjustment and a trust ledger statement from the house I just bought. I was just wondering how I should keep these documents. Am I allowed to share these with my accountant or lawyer?
Hello Leo, yes, you should share these documents with your accountant! The information in those documents are used to determine the correct total costs of the property and any required adjustments to the income for the period. It is also ideal for future reference, years from now, if the CRA asks for evidence of the adjusted cost base of the property when the property is sold.
If you want to avoid the pre-tax-deadline-scramble, you should forward them to your accountant as soon as possible. This gives your accountant time to clarify entries, make his or her own notes and complete any work well in advance of the tax deadline rush.
Hi, I recently took out a loan to use for investment property. I was talking to a friend and he said it was possible to deduct some interest on an investment loan. Is this true? If so, how can I take advantage of these deductions?
Hello Derrick, yes, you may be able to deduct interest paid in respect of an investment loan, only if you meet the following requirements.
1) The loan cannot be implied, it has to be bona fide.
2) Interest must ultimately be paid.
3) The loan must be documented with a rate of interest, terms of repayment, an amortization period and a term for the duration of the loan.
4) The funds should be traced directly to the investment, which must be real.
Most interest paid on monies borrowed for investment purposes is tax deductible at this time (the CRA is currently working with the rules). Usually, interest paid on money borrowed for investing in the stock market is tax deductible, even though some of the stocks have a limited potential to earn dividend income. When it comes to real estate investing, the CRA has tried to limit the amount of interest deducted so that you cannot get a loss from an investment property.
When dealing with loans, your objective is always to pay off loans where the interest is not deductible for tax reasons. If you borrow $100,000 and your interest rate is 6%, then your interest payments would be $6,000 (assuming it’s compounded annually, and more if compounded semi-annually). If the interest is tax deductible, your loan just got cheaper by the amount of taxes you saved based on your marginal tax bracket. So, if your marginal tax rate is 22%, your tax savings are $6,000 x 22% = $1,320. If you are in a 42% tax bracket, your savings would be $2,520.
Traceability is one of the factors that make loan interest deductible; typically, the CRA follows the direct flow of money. If you borrow $100,000 and deposit it in your lawyer’s trust account and use it for a down payment on rental property, it becomes directly traceable.
Hi
My house where I live at the moment is free and clear, has no mortgage. But I would like to buy myself another house to live in and rent out the one I live in now. Would I be able to claim the interest on the new mortgage I put on the house I live in now which I intend to rent out after I buy my new house ? any advise would be greatly appreciated..
Hi Supatra,
For you to be able to deduct interest, you have to show that the loan you’ve borrowed went to purchasing/investing your investment property. Since the new mortgage you will take will go towards the new house you will live in, you won’t be able to deduct the interest on that mortgage as rental expense. There are ways around that involves incorporating a company and the company taking the title to the rental property. This alternative is rather complex and you have to weigh the cost/benefit of this strategy. Please contact me for more details.
Allan,
My wife and I own a house in Victoria that we lived in until transferred for work in Sep 2012. We rented the house out (hoping to return to Victoria) and effectively changed the use to a rental property. With little prospect of returning to Victoria in the near term we are now looking at selling the property. If I read it all right the capital gains to be reported would be the change in FMV from Sep 12 to the time of sale. However, how do we figure out the FMV for Sep 12? Is a municipal tax assessment for the year of the change of use indicative of FMV (that is how the municipality says it sets value but what about CRA?). Thanks.
PS. Great site.
Hi Scott,
The capital gain is equal to the difference between the selling price (less legal fees, and commissions paid to a real estate agent) AND the fair market value (FMV) of the home at the time it was converted into a rental (September 2012). Only have of the capital gain is taxable.
You can obtain a valuation from a certified appraiser or from a qualified real estate agent. The tax assessment value is not acceptable.
Thank You,
Allan Madan, CPA, CA
Hi Allan, great video. Just want to be clear on the sale of a rental property by a non-resident of Caanda. i now live in the US but own a rental property. we have paid taxes yearly to the Canadian givt on the rent received. i bought the house for 100K and will sell for $120K. I will put $10K into it when just prior to sale (carpet, baths). as a non-resident what is the process. what is the tax i will pay? ($120K value less cost of $100K + $5K = $15K divided by 2 = $7,500 taxable cap gains?). Is this right? Why have i read that the govt wants to hold 50% of the gross sale price? Can i avoid this? Please let me know your thoughts. Thanks!
Hi Nick,
The capital gain will be equal to the difference between the selling price (less commission and legal fees) AND the adjusted cost base of the property (ACB).
In your example, the selling price is $120,000. The ACB is calculated as the original purchase price of $100,000, plus improvements made of $10,000, which equals $110,000. As a result, the capital gain realized on sale will be $10,000 (i.e. $120,000 – $110,000). Only half of the capital gain is taxable, which is $5,000 in this case.
As a non resident, withholding tax of 25% applies to the gross selling price (i.e. 25% x 120,000), unless a clearance certificate is obtained from the CRA. My fee for filing the application for a clearance certificate is $900.
Please contact me a couple of month’s prior to your decision to sell, so I can help you.
Kind Regards,
Hi Allan, I am a new real estate investor. I was doing research on capital gains and how they will affect me. I am not finding a lot of information about it, so I was wondering if you could help me out a little bit.
Thanks!
Hello Clancy, let’s say you bought a property for $100,000 twenty years ago. If it’s your only rental property that you own, and you sell it for $250,000, your profit from the property is $150,000. Your taxable capital gain would be $75,000, so the tax you pay will be based on your marginal tax bracket.
You will also have to be aware that the CRA looks for intention in terms of capital gain. Here a few examples of how they may view the various transactions:
• You buy a rental property and keep it for several years. This puts you in the business of earning rental income. When you sell the property, the sale of the property would likely be a capital gain.
• If you buy a presale condo and sell it prior to possession, the transaction was probably in the nature of trade and therefore taxable as regular income.
• You buy vacant land, subdivide it and sell it. Again, this is probably a transaction in nature of trade, which would result in regular income.
• If you buy a fixer-upper property, fix it and sell it in a short period of time, you are also likely making transactions in the nature of trade.
Hi, I am buying my first rental property. I hear that I will get a capital gain automatically if I sell the property later on. Is this true?
Hello Petra, in your situation, this may not be true. The CRA looks for certain parameters when deciding to treat the profit on sale of real estate as capital gain or regular income. Capital gains are only half taxable, whereas regular income is fully taxable. In most cases, you would prefer capital gain treatment.
Some of the questions the CRA will ask to help them determine whether a capital gain or regular income is realized are:
• What was your intention at the time of purchase? This just means that are you looking to gain profits from a rental property, or using the property for yourself, or is the intention to gain a profit on the future sale of the property?
o Will I able to implement my plans?
o Am I thinking of flipping?
o Will I list the property prior to or shortly after possession?
• What is my knowledge of the business? If you are a real estate agent, you will know more about real estate than a regular person
• Do I have a record of previous purchases/sales? Will those say what my intentions are for this property?
• How long will I keep the property?
The answers to these questions will ultimately determine if you will acquire a capital gain or regular income upon the sale of the property.
Hi Allan, I’m hoping you can assist me with some personal taxes.
Here’s my situation:
I’ve been abroad for a number of years now. Started first travelling, then I’ve worked off and on (and paid taxes) in Malaysia and Singapore. Currently we are living in Hong Kong. I have not been filing a Canadian tax return, which (according to advice I got years ago) means I am considered a non-resident for Canadian tax purposes. ?
At some point this year my husband (a UK passport holder) and I plan/ hope to buy a cottage in Ontario. We have the idea of using it a few weeks for ourselves and renting it out for income at other points throughout the year.
I’m hoping you can advise how this would work for tax purposes.
Hi Andrea,
Thanks for contacting me. A cottage in Canada that is available for your use can create a ‘primary tie’ to Canada for you. Even if you only have 1 primary tie to Canada, you could be considered a tax resident of Canada. On the other hand, the cottage is not available for your personal use for most of the year (while it’s rented), and therefore isn’t a ‘primary tie’ to Canada.
You could seek relief from taxation in Canada pursuant to the Honk Kong – Canada Tax Treaty. The treaty tell us that where you have a home in both countries (HK and Canada), you are considered a resident of the country where your personal and economic ties are closer to. If your ties are stronger to HK than Canada, you will be considered a resident of HK pursuant to the tax treaty.
Non residents of Canada must remit monthly tax to the CRA equal to 25% of the gross monthly rents collected, and must file a Section 216 Non Resident Return each year. A waiver, Form NR6, can be filed to reduce the monthly withholding tax.
Allan Madan
My husband and I own a rental condominium in Toronto. Since I was the lower income person, and the rental property was generating a net income, on the income tax filing, we indicated that 100pct is my share. Now when we dispose it off, is the capital gains attributed to only myself or it can be split between both of us?
Hi Geetha,
Unfortunately, allocation rental income is not as simple as that. The allocation is based on each partner’s % of equity contribution to the purchase of the property. For example, assuming no down payment and a mortgage under both husband and wife’s name, then the allocation would be 50/50. If you can prove that only you made the contribution to the purchase of the property, then you must report 100% of rental income and capital gain.
Hi Allan,
I currently own 3 real estate properties, one is my principal residence (Property 1) and 2 are income rental properties. All Properties are under my name and my common in law wife.
– I was thinking to start 2 corporations and put each rental under one corporation. Reason for it, is for Liability purposes and Asset protection, I watched a video of yours that sometimes is even good to have a Holding Company attached to each Corporation.
My questions to you are:
1)- Can we do that ? Will the bank accept a change of Title on the properties ?
2)- When transferring the property to the corporations, are there any tax consequences with CRA ?
3)- The income under the corporation, can that qualify for the lowest Corporate tax rate in Ontario of 11% ?
Hi Frank, the answers to your questions can be found below:
1) You can transfer property to a corporation, but you must obtain the bank’s approval first. Land transfer tax will apply to the transfer.
2) Unless you and your wife elect under Section 85 of the Income Tax Act and complete the relevant paperwork, capital gains tax will apply on the transfer. The selling price on the transfer will be deemed to be equal to the market value of the property at that time.
Section 85 of the Income Tax Act allows property to be transferred by a shareholder on a tax free basis to a Canadian corporation.
3) The small business corporate tax rate does not apply to rental / investment income earned by a Canadian Controlled Private Corporation (CCPC). CCPC’s pay corporate tax of approximately 48% on rental / investment profits. This is the combined Federal + Ontario corporate income tax rates.
Regards,
Allan Madan
Hi Allan,
My friend and I are currently going into business together as 50/50 partners flipping houses in Ontario, Canada. We will require bank financing for property purchase and renovation costs. Could you please advise me on what the best business structure is for purchasing/holding property and distributing after sale profits out to each of us? Should we set up a Corporation or LP? We would also want some liability protection and I am aware the profits will be taxed as full business income with no capital gains exemption available.
Thanks for your help!
Best regards,
Brian
Hi Brian,
When filliping real estate, the property being flipped is treated as ‘inventory’ instead of a ‘capital asset’. The profit earned on the sale is classified as business income and is fully taxable.
Fortunately, small business corporations in Ontario pay a combined (Federal + Ontario) income tax rate of only 15.5%. This means if your corporation made a profit of $100,000 in the year, the resulting tax would be $15,500.
Because of the tax advantages and liability protection provided by a corporation, I recommend that you purchase real estate (to be flipped later) in the name of a corporation. You and your business partner will become shareholders in this corporation.
I can setup the corporation for you, provide tax planning and advice and file the company’s annual tax returns. Please let me know if you would like to discuss further.
Thanks,
Allan Madan, CPA, CA
I purchased a second property in 1974 which was my principal residence at the time. In 1996 my wife’s principal residence in the city was sold and our second property then became our principal residence. We have lived here since then. We have made many renovations and improvements over the years, but we don’t have any records to show what monies have been spent on upgrading. When the time comes to sell, is there a formula that can be used to determine the amount of taxes to be paid for capital gains?
Hi Darren,
In order to increase the Adjusted Cost Base of the second property by the amount of the improvements made, you must have records (e.g. improvements) to back up your claim.
Thanks,
Allan Madan, CPA, CA
Hi Allan, I am a new real estate investor. Sorry if this is a dumb question but should I be using the Capital Cost Allowance as a tax-free and interest-free loan from the CRA?
Hello Jeffery, a lot of new investors have the same question because buildings do not go down in value until later in their or if they receive insufficient maintenance. There is no right or wrong answer to this question, it all depends on your personal business plan.
The CRA allows you to slowly deduct the cost of a building over time. Various exceptions and restrictions exist, but for residential buildings, the CCA rate is typically 4% a year. This means that every year you the possibility to deduct 4% of the cost of the building which you haven’t previously deducted.
This is where your business plan comes into question. In the future, if a building sells at a value greater than the cost, the CRA will include all previously claimed CCA into your income. Because of this, almost every real estate investor will never claim CCA if you are able to use the principal residence exemption on a property. The principal residence exemption can make the profits on the sale of a property tax-free. Claiming CCA will make the property ineligible for the claim and cannot be changed retroactively.
Hi Allan, I am a new real estate investor and want to buy a house to rent out. I hear people say real estate is about “location, location, location!” There is a lot of locations out there! I was wondering if you had any insight on where the best location would be for buying a house for the sole purpose of renting.
Hi Meghan, from my real estate experience and from the information I have gathered from real estate investors I have talked to that deal with buying houses that they will rent out. The general consensus seems to be that you should find a property in a neighbourhood that is between 10 and 35 years old. These neighbourhoods are typically filled with the average middle-class people. Neighbourhoods that are less than 10 years old tend to be a lot more expensive and will be a lot harder to find a renter. Neighbourhoods that are older than 35 years old tend to be more run down in and declining areas of the town. Obviously this is not the case in all situations, but finding a house in the 10-35 year old neighbourhood is a good starting point for young investors.
Contact an independent real estate specialist if you want more, in depth information!
Hi Allan, are there any tax implications to refinancing a property that I own personally?
Hi Tiffany, when you refinance a personally owned property, the interest you paid on the loan may or may not be deductible. It really depends on what you used the funds for. If they were used for personal use, the interest is not deductible. On the other hand, if you used the money for qualified investment purposes, the interest will be deductible. The funds received on refinancing will not be taxable. Refinancing a property, especially if it is a corporate property, is a lot of hard work with many different rules. Always be sure to tell a tax professional what your plan is, as you cannot plan your tax strategy retroactively.
Hi Allan, a friend has recommended that I should look into something called Refundable Dividend Tax On Hand in terms of using it to cut down on my corporate real estate taxes. I have never heard of this deduction and was wondering if you could explain it a little bit to see if I can qualify to use it.
Hi Charles, rental income is usually considered “inactive” income, although there are some exceptions, and applicable corporate tax rates can be high (48.67% in Ontario). It is possible to pay out dividends from the company and receive the Refundable Dividend Tax On Hand (RDTOH), which translates into a refund of 26.67% of the corporate taxes paid. Instead of paying corporate taxes of 48.67% on rental profits, the net tax will approximately be 22%, after accounting for the RDTOH.
In paying the dividends, personal taxes will result to the shareholder. That leads to the question: How much in taxes will the recipient pay? The majority of dividends paid to Canadian residents are taxed in a very favourable manner as compared to other sources of income. It is possible to pay around $36,000 of dividends to a resident of Ontario without triggering any personal taxes (other than the $450 Ontario Health Premium) due to the “dividend tax credit.” This strategy can be particularly attractive where several shareholders with otherwise low levels of income can earn the dividends.
Hi Allan, I was wondering if there were any tax advantages for setting up a family trust that will help with my real estate sales. If there are, would setting one up be worth it in the end?
Hello Ian, creating a family trust for the purpose of investing in real estate can have tax advantages if you plan and create it properly. Here are a few points you will want to keep in mind when deciding if a family trust will work for you.
• A family trust is generally taxed at the highest rate of tax unless it allocates income to a taxable beneficiary.
• Beneficiaries are generally family members and potentially an investment corporation. When dividends from an active corporation are paid to a family trust, the full amount of the dividend is often allocated between beneficiaries so the family trust does not have taxable income.
A family trust is not a Do-It-Yourself project. You will need the help of a lawyer, accountant and even an appraiser. You will also need an accountant to coordinate the trust and determine the tax consequences of its creation.
Hi, I have owned a rental condo in Toronto for 5 years and now have an offer-to-purchase agreement that was signed in December 2014, with the closing and possession date being in January 2015. Question: for CRA reporting of the taxable capital gain (assuming the sale goes through) am I correct in assuming that I would report in 2016 because the “sale” is considered to have taken place in 2015 and not 2014? Thanks for your clarification…
Hi Stephen,
Since the closing date is in January 2015, the capital gain must be reported in the 2015 tax year. The due date for filing a Canadian personal tax return for the 2015 year in April 30, 2016.
Thanks,
Allan Madan, CPA, CA
Hi Allan,
I am a regional sales person with more than 30% of my income in the highest tax bracket. My residence is in BC but I have a rental property in Calgary and I work about 25% of my time in Alberta, Are there capital gains issues if I swap my declared residence to Alberta? Are there requirements for how much of my time i spend in Alberta?
Hi Bryan,
If you move into your Alberta rental property and make that your primary residence, there will be a deemed disposition (sale). The sale price will be deemed to be equal to the fair market value of the property at the time you move into it. Any capital gain realized will be taxable to you.
To be considered a resident of Alberta, you must prove that your habitual abode is in Alberta; this means you ordinarily live in Alberta as opposed to BC.
Allan Madan, CPA, CA
My sister and I bought a house in 2008 in Winnipeg (both our names are on the mortgage). My sister lived in the house while I worked and rented an apartment in Toronto. I retired in 2013 and moved into the house and consider it to be my principal residence. What tax implications are there if I sell the house next year?
Hi Arthur,
When you sell the house, your sister can claim the principal residence exemption on her share (50%) of the gain. As a result, she won’t pay any capital gains tax so long as she lived in the house for all of the years that she owned it.
However, you will have to pay capital gains tax for your share of the gain realized on the sale of the home. You can claim the principal residence exemption only for the years that you lived in the house.
I can calculate the estimated about of tax payable by you on the sale of your house. Please email me to ask about fees.
Allan Madan, CPA, CA
5 acre parcel with home, purchased 30 years past, considering subdividing 1.5 to 2 acres from base property and disposing as bareland.
Any thoughts as to how to go about figuring the capital gain structure by doing so, and is gain still taxed at 50%.
Thanks
If you deposited the maximum amount for the year, then withdraw money, you need to wait until next year to deposit the money back in or you’ll be charged as over contributing. But, the withdrawal you made will be added to your next year’s contribution room without you being charged any fees. If you’re switching TFSA accounts, you can transfer the money from one TFSA to another without any tax consequences, but you need to make sure it’s done by the financial institution.
I’ve bought a house in 2013 as an investment. Now I am planning to sell it. Should I pay HST? Thanks in advance.
Hi Natalia,
Thanks for your question!
The CRA has published various memos dealing with GST/HST issues and real property which may be helpful:
http://www.cra-arc.gc.ca/menu/GTMS_19-e.html
In general, the sale of real property is taxable, as it is considered to be a “Commercial Activity” under ss. 123(1) of the Excise Tax Act (“ETA”) – unless specifically exempted under the Act. Most exemptions for the sale of real property are provided in Part of Schedule V of the ETA, and generally apply to:
• sales of previously occupied residential complexes,
• sales of certain types of leased land,
• sales of farmland to related persons, and
• sales of real property made by an individual or a personal trust with certain exceptions (see paragraph 5).
Your situation likely falls under the first category of sales of previously occupied residential complexes, and as such would be exempt from GST/HST. Please note however, that a concrete answer cannot be given without knowing the exact details of your situation.
Please do not hesitate to contact us if you have any further questions, as the indirect tax implications of real estate transactions can be complex.
Thanks,
I want to transfer a 1% interest in a rental property to a CCPC of which I am the president and sole member. I have been taking CCA on the building. What is involved in doing the transfer, and are there any immediate tax consequences?
The following tax consequences could arise on the transfer:
1. Capital gains tax on the amount by which the market value of your interest in the property exceeds the purchase price. Capital gains tax can be avoided by rolling over your interest in the property pursuant to Section 85 of the Canadian Income Tax Act to your Canadian Controlled Private Corporation.
2. Land transfer tax on the market value of your interest in the property at the time of the transfer
Please contact me if you would like to discuss this further.
Allan Madan, CPA, CA
So im going to sell one of my houses this year. What are my options to lower my capital gains.
– I lived in the house for first 2 years as principal. Think ive had it 6 years now
Also I was told revenue canada give a break by letting me decide wich house i want to declair as personal house. If i declare this one, that just means my house in hamilton will be my house which capital gains are going to be. Does this sound right?
Hi Geoffry,
You can elect to claim the principal residence exemption for a house that you ordinarily resided in. If you had two houses in a year and you lived in them both throughout the year, then you can only claim one house as a principal residence for that year. You can make the decision on which house to designate as a principal residence on a year-by-year basis, and your decision does not have to be consistent.
For the house that you lived in for 2 of the 6 years that you owned it, you can claim a principal exemption for 1/2 of the gain. The formula is as follows:
(A) 1 + Number of Years Lived in
(B) The Number of Years Owned
Principal residence exemption = (A) divided by (B) x The Gain on The Sale of The property. Thus, you can exempt 50% of the gain on the sale of the house from tax through the principal residence exemption.
Allan Madan, CPA, CA
Incorporating a Developing( Building the Vacation home) and Renting Vacation Rental buisness, Is this Small business an Active or Passive when your averge rental periods are from 3-7 Days. Company has 2 shareholders. Thanks for your advice
Hi Raj,
An “active business carried on by a corporation” means any business carried on by the corporation other than a specified investment business or a personal services business.
A specified investment business is defined as a business in which the principal purpose is to derive income from property such as interest, dividends, rents and royalties. While you may think you’re carrying on an active rental business, unless you have more than 5 full-time employees your business is really a specified investment business.
Best Regards,
Hi, the question I have is that I recently had a rental property that was rented for a person to live in (ie, it wasn’t a commercial property) that had severe damage due to a fire. The insurance company repaired the property (I received no cash… they repaired it 100%). Once it was finished, I then re-rented the property.
My question is do I need to declare capital gains on the property if I haven’t sold it?
Hi Philomel,
If you changed the use of the rental property from rental-use to personal-use, then there will be a deemed sale of the property at its market value at that time. This will trigger a capital gain.
However, if you continue to rent the property, a capital gain will only become taxable upon sale.
Hi Allan,
Is it necessary to have an appraisal and to separate land from improvements in the ACB and at the point of sale for rental property? Thanks.
Hi Miranda,
An appraisal report should be prepared at the time of purchase and the time of sale, separating the land and building portions.
I bought a House in 2011 with purchase price of $245000 GST included. I sold my property 2015 $440,000, commission $19,888. Legal fees 1200, windows changes 600 land Transfer tax paid once it was purchase $2,153.36 and legal fees for the purchase 1300, penalty for break the charge 5500.00 = = 164358.64 the property was under my husband an myself name. HOW MUCH I HAVE TO PAY IN CAPITAL GAINS. THANKS
Hi Matilde,
You will have to pay tax on $41,089.66. Further explanation is as follows.
Capital Gain calculation:-
Proceeds of Disposition:- 440,000
Less:- Actual cost base = $ 245,000
+ Renovation = $600
+ LTT on Purchase = $2,153.36
+ Legal fees = $ 1,300 ( 249,053.36)
Less:- Outlays on Selling
1) Commission = $ 19,888
2) Break of Mortgage Penalty = $5,500
2) Legal fees= $ 1,200 (26,588)
Net Capital Gain 164,358.64
Your Share of Net Capital Gain (50%) 82,179.32
Taxable portion of Capital Gains is 50% 41,089.66
Estimated marginal tax rate is Approx. 22%, hence tax payable on this gain = $9,039.73
Marginal Tax rate shown above is an estimated percentage. Your Marginal Tax rate is subject to change depending on your total taxable income. We don’t know your taxable income to give you the accurate tax rate and taxes payable.
Best Regards,
We converted our principal residence to a rental in 2010, and sold it in 2014.
I’m trying to figure out how and what to report for this.
For proceeds of disposition, is this the price the rental house sold for?
For adjusted cost base, is this just the fair market value of the property in 2010? (We remortgaged the property at the time for 90% of it’s FMV, if that makes sense)
For outlays and expenses, is this everything, including lawyers and real estate agent fees, and the remainder of the mortgage that was paid back to the bank?
I’m guessing that adjusted cost base doesn’t include improvements to the property while it was a rental, as these were claimed as rental expenses during the years is was rented… is that correct?
Am I missing something?
I really hope what I’m asking is clear! Thanks
Hi Lisa,
• Yes, when the property is actually sold, “proceeds of disposition” generally mean the amount the property is sold for.
• Yes, the adjusted cost base of the property is the fair market value of the property in 2010 (on the date the change in use occurred).
• Renovations that increase the useful life of the property or improve the property beyond its original condition should be added to the adjusted cost base of the property. Only repairs and maintenance (ex. paint costs) expenditures are to be expensed.
• Outlays and expenses include legal fees and real estate agent fees/commissions.
Hi, I bought a preconstruction condominium in 2010 that became ready for interim occupancy in 2014. The purpose of the purchase was for investment as a rental property. Final Closing was not until 2015. The builder did not allow the property to be rented out during interim occupancy. What is the tax treatment of expenses I have incurred in 2014: a) interest on deposit that was borrowed b)interim closing costs (legal etc) c) occupancy fees. are these counted as current expenses leading to a loss? or must they be capitalized in 2015 when final occupancy occurs?
Thanks in advance.
Bob
Hi Bob,
Yes, you can claim the same deductions on a vacant rental property as you would if it was occupied. You would do this by filing a T776, Statement of Real Estate Rentals, with your personal income tax return, where you would claim allowable deductions, such as your mortgage interest, maintenance, repairs, legal fees, homeowners insurance and the cost of advertising your rental; however, it is important to note that you cannot claim a deduction for the loss of rental income since you were unable to rent the property, and therefore had no reasonable expectation of profit.
Hi Alan,
I have an investor who has title on a rental, but I am entitled to 25% of the cashflow + 25% of the capital gains. I have a JV agreement with the investor (though I am not shown on the deed). On my taxes, do I claim 25% partnership on the property as well as the appropriate income/expenses?
Also, I have some non property specific expenses, like website maintenance, paying birddogs, travelling to meet investors, etc. How do I claim these expenses?
Hello Allan,
You been doing amazing with the corporate income tax for our company which is a real estate shell company. We are planning to sell one of the properties we have, but we would like to know if this is a good moment to do it in terms for taxes, we will have some capital gains. The capital gains I am estimating is around $ 90,000.00. And the plan is to buy another property this year using this money as down payment. You may suggest another strategy to write off expenses i.e. buy a vehicle or payroll.
Thank you,
Deandra.
Hello Deandra,
The estimated taxes on capital gains are computed as 25% of the gain made on sale. In this case, your company can expect to pay $22,500 in taxes. The only way to reduce this gain is by (A) Deducting selling costs such as legal fees and commissions and (B) By adding improvements previously made to the ACB (cost) of the property.
You should also be aware that the corporation’s capital dividend account will increase by 1/2 of the capital gain, i.e. by $45,000. This means that your corporation can pay a tax-free dividend to its shareholders for up to $45,000.
We are happy you like our service!
Hello Madan Team,
My name is Gerald and lat year my mother was placed into LTC. She owned a mortgage free primary residence condo in Burlington for the last 25 years. My brother and I are now left to sell the unit. We want to assist with her LTC therefore we are trying to avoid as much capital gains as possible. We were debating on placing the money received from the sale into a joint bank account (my mother, brother, and myself) – these finds will be withdrawn to cover my mother’s health needs. If she unfortunately passes away, we want to avoid probate from whatever is left.
What are your recommendations?
Thanks,
Preya
Gerald
Hello Jeff,
There shouldn’t be a capital gains tax on the sale of your Mom’s home since it is her primary residence.
I hope this helped.
Thank you,
Madan Team
Thank You for your concise article
What about the situation were the house is purchased by your CCPC and rented back to you. It seems to me that all of the disadvantages become advantages if you are holding investments in the CCPC. The lower investment return of the rental reduces the tax disadvantage of holding investments in the CCPC, improvements are paid by the CCPC and incease the book value of the asset (reducing the cap gain when you sell), you write off tax and maint. The only downside I can see is if the market goes up and you have to declare a capital gain when you seel. But I see this as another advantage as a pop of the housing bubble would be a pretax loss.
Am I missing something? No one seems to do this as far as I can find online. Why not?
I agree with your logic below. But, most individuals prefer to own their homes personally in order to take advantage of the principal residence exemption upon sale. If real estate prices continue to rise, this exemption becomes more valuable. A couple of other points to note are:
– Land transfer tax is payable when a personally owned home is transferred (sold) to a corporation
– Rents must be charged according to market rates
First off thank you for an informative site.
I made the mistake of buying a pre-construction condo five years ago. Originally I was suppose to move in and then I decided to rent it out so I got hit with a massive HST bill. The purchase of agreement and sale states that I paid 297,000 however, with the HST cost I had actually paid 313,000 approx (after I received the government rebate). If I sell the property for 315,000 is CRA going to hit me with a capital gain on 297,000 or can I claim the full amount actually paid on closing. The earlier comments were helpful because I saw that I can at least deduct lawyer fees, land transfer, occupancy period, and the mortgage discharge fee.
Hi Stacey,
The HST paid can be added to the cost of the property. Therefore, the capital gain will be calculated based on a cost amount of $313,000.
Hi I am in a unique situation. I purchased a pre-construction condo in 2012, final closing will be end of 2015. I bought it with the intent to live in it. Things changed and I received an offer from my company to relocate the the UK office in Sept. This will be before my closing and they are saying I will be deemed a non-resident of Canada.
1. There is no FMV for this property as it is not registered. What do I do in this situation for disposition?
2. I am hoping to rent it I am pre-approved through the builders lender with 20% down. Will I have a problem closing the condo as a non-resident. My research shows non-residents need 35% down payment. Does the bank even care?
Would it make more sense to sell?
Hi Vinita,
Thanks for contacting me. Departure tax will not apply to an interest that you have in a contract to purchase real estate in Canada. However, you should disclose the deposits made on form T1161.
Note that there is a 25% withholding tax on the gross monthly rents collected from your tenant. You can reduce this tax by filing form NR6. You should also file a Non Resident Rental Return (Section 216) annually.
Hi,
Very impressive comments and answers section!
We inherited our fathers house after he died in February 2013. It’s taking us a while to settle other aspects of the estate so we are just getting around to selling the house. We expect capital gains.
1/ Does Dad’s Principle Residence Exemption (PRE) expire immediately at death or would it cover the entire year of 2013? (just hoping)
2/ The house needed repairs when Dad died and the appraisers deducted considerable value for repairs to establish the value at death. Normally, I understand we could not add repairs like painting to the ACB because at one time before Dad died the house was properly painted. But at the time of death the house needed painting so could we add painting to the ACB at death?.
thanks,
Greg
Hi Greg,
Thanks for your question. The principal residence exemption will apply up to the date of death. Any increase in value from the date of death to the date of sale will apply to the beneficiary of the property.
Improvements made after the date of death will increase the ACB for the beneficiary of the property, and will reduce the capital gain from sale of the property by the beneficiary.
Can the lifetime Capital Gains Exemption be applied to the profit on the sale by a sole proprietor of a rental property
Hi Paul,
The lifetime capital gains exemption can not be claimed by a sole proprietor on the sale of a rental property.
My son just bought his first house out of real estate can he claim the legal fees he paid to purchase the house?
Hi kathy,
He cannot claim legal fees paid on the purchase of this house, but he can claim the First Time Home-Buyer’s Tax Credit for $5,000 if this is his first real estate purchase.
Hi Allan,
Great article, which I am glad google led me too it. I have a question I hope you can answer and again thank you for such informative responses to previous askers.
Anyway, a piece of land was purchased about 10 years ago (for 290K) with intent to build a commercial office building on the site. Anyway, not being able to acquire the necessary permits at the time to build on it, the land remained vacant for the 10 years. In the meantime another opportunity came available and a building was purchased 3 years ago instead ( this building required extensive renovations and presently has a 500k mortgage on it). The vacant land was recently sold for 900K a 610K profit so to speak.
My question is any suggestions to what can be done to limit the tax consequences of the capital gains? I was hoping that I would be able to put a substantial (300K) payment on the mortgage of my present building, but not sure if that is permitted or if there is another way to lessen the taxes.
Cheers
Hi JP,
Your options are very limited. When the property was initially purchased it should have been acquired through a Family Trust or Canadian Corporation in order to split the capital gains realized upon sale among family members. I suggest that you claim all selling costs, including legal fees, accounting fees, real estate commissions, and costs incurred to make the land ready for sale. Also consider making a RRSP contribution to lessen the tax hit.
Hi Madan,
I needed to know if I have to pay Hst, on the sale of my commercial property, which I am making a huge loss. And selling it at half the my purchase price.
It is registered in my corporate and I paid no Hst on the time of purchase.
Thank you
Sima
Hi Sima,
You have to collect HST from the purchaser on the sales price. If both you and the buyer are HST registrants, you can complete an election so that the seller (you) does not have to collect HST on the sales price from the buyer.
Hi Madan Team
great site – appreciate all the info you are providing.
Quick question – I am selling my rental property 3 years into a 5 year mortgage and will incur a prepayment penalty on the mortgage as well as the fixed portion of a line of credit taken out for improvement to the rental property.
How do I treat the prepayment penalty – I assume i claim it as an expense (and all of it at once since i will no longer own the property). or is it part of the capital gains calculations?
Thanks for your help
Cheers
Chris
If i purchase a house renovate it and flip it and make $30000 net when sold if i claim it as a business what would the taxes be on that?
Thanks,
Stan
Hi Stan,
Income from flips is classified as active business income and is fully taxable to you, unlike a capital gain which is only 50% taxable. In your example, $30,000 will be added to your income. If you have no other source of income during the year, then you would pay $6,700 in taxes, which includes CPP premiums payable on self employment earnings.
Hi, Allan,
The article is very impressive!
What is the definition of “Total outlays and expenses” when calculating capital gains? Does it cover mortgage interest, mortgage discharge fees, government charge, etc. when selling my property and discharged my mortgage? Thank you!
Hi Allan,
Thank you very much for your valuable information.
We bought a new condo as our rental property. We include rental income when we file our personal income tax. But if we let my son live there as his principal resident after we finish renting for several years, any capital gain? (Is it changing purpose so that it is deemed disposition)
If my son rents from us with lower rental fee, no any capital gain? (for no deemed disposition) or if the rental fee is fair?
Thank you very much.
Spring
Hi Spring,
If you let your son live in the property without paying rent, then the property will change its status from a rental property to a personal-use property, causing a deemed disposition of the property for its market value at the time he moves in. This can trigger a capital gain.
You can charge below market value rents to your son, but then you cannot claim a rental loss. I suggest that you rent the property to your son based on market value rates.
Hello,
Got a quick question … we bought a new condo and paid Occupancy Fees to the developer from Jan – Nov 2015. If we’re filing axes for 2015, can we claim Occupancy Fees as an Expense against rental income?
Hello Allan,
Great article, thanks for this valuable information! A friend of mine and I are planning on flipping our first house. We’ll have to consider it as business income. We are currently trying to figure out how to calculate our net profit after costs and taxes. What can be added to the cost of the house and what is not? Let’s say we buy the house 180 000$, we put 40 000$ in renovations, 2500$ in transfer tax, 1000$ in lawyer, 2000 in property taxes, 600$ in electricity, 3500$ in mortage interest, 4200$ capital paid off mortage, 4000$ in homestaging and let’s say we sell the house for 280 000$ and have a 10 000$ realtor fees. Can all these fees be added to the cost of the house, making the profit:
(280 000) – (180000+40000+2500+1000+2000+600+3500+4200+4000+10000)=32200$ ?
Thus, we would be taxed in full on 32 200$?
Thanks for your help!
Hi Allan:
Thank you so much to provide so much info on rental property issues. Since CCA is so complicated and will be reclaimed back by CRA, I did not claim any CCA for last few years. But will CRA gives you trouble if you deduct “appliance, garage door open, central vacuum, blinds…” at the time when you sell your rental house? Is there any expiry date on how long you can keep the receipts vailid?
Also, for commission paid to real estate agent when renting the house, under which line do I enter in rental statement form ? There is no “commission” under the Expenses. Should I enter it under “Legal, accounting, and other professional fees” or add a line named “commission” by myself in tax returm form?
Thank you for your help.
Kevin
Hi Kevin,
Thanks for your questions. You can claim CCA on appliances, and furniture & fixtures without claiming CCA on the house (excluding land). This will not create a problem.
Do not throw away your receipts. You should keep them for at least 10 years.
Enter commissions paid as an other expense on form T776.
Hi, i accepted a developer offer 4.5 years ago for my principle residence which fell through when they couldnt purchase the block. Prior to the deal falling through, my wife and i moved to a new property while my newly immigrated inlaws stayed in the original property rent free. Developers have come and gone but would the original offer be my cost base? Are there any exemptions available if i sell to new developer?
Hi, BJ
Your ACB is the purchase price, plus improvements and closing costs. You can claim the principal residence exemption for the years that you lived in the property.
“Hello. Thanks for the useful information you shared. I read and understood the general partnership option. But I still have a couple of question:
1-My husband and I have purchased an investment property in Ontario but haven’t closed yet (closing date is coming up in December). We have plans to rent the property and sell it in a couple of years for capital gain. My husband has a much higher income than I. if I have the option to be either the sole owner of the property or a co-owner with my husband, which one works better for us in terms of paying lower capital gain tax if we sell the property in future?
2-And if the co-ownership is a better option, does it matter for capital gain tax calculations if it is a 50-50 ownership or 1-99, I having the bigger share of the ownership?
3-And last question, do we have to officially register a partnership or as long as our names are on the deed, we are considered partners?
Thank you for your advice in advance.”
Hi Nas,
”
It’s better for you to be the sole owner since you have a lower income compared to your husband. BUT, according to the tax rules, income and capital gains from a property must be split between spouses based on the cash contribution that each spouse made toward the purchase of the property. Therefore, if you want to be the sole owner to save tax, then you have to pay for the downpayment yourself.
If both of your names are on title, you can be considered partners, so long as you both made a cash contribution toward the purchase of the property as discuss above. You do not need to register a general partnership.”
Hi Allen, Thank you for taking the time to write these articles.
My wife and I are ready to semi-retire. We have a commercial building, that is incorporated, that rents to an active business, which is not incorporated. My wife and myself are the sole owners of both companies.
We would like to lease or sell the building. If we lease, will we lose the CCPC active business income lower tax rate?
If we sell, how do we avoid the double taxation you talked about in your article?
We use T2 and personal tax software. How would I enter the gain to approxiamately see how much tax we would have to pay?
Thanks
Hi Arthur,
Your corporation can no longer claim the small business deduction for active business income earned in Canada if it leases to a third-party (i.e. not to your sole proprietorship anymore). The leasing income earned (less expenses) will be taxed at a high rate (approximately 50%).
I do not recommend attempting to prepare a corporate tax return yourself in this situation. This is because you will need to calculate the RDTOH balance, CDA balance, taxable capital gain, all of which are difficult to do.
Hi I have a tax questions. In July 14, 2016 I took possession of a new home (show home) and the deal was the builder will need to lease back from me till Dec 15, 2016 to remain show home. From July to Dec, the builder paid me rent. So I only able to move in on December 22, 2016. My old house is currently in the market now but is not sold yet, and of course my primary resident will be at the new house. Do i need to report capital gain in the income tax or just rental income (although i think there shouldnt be any). What about the old house if I sell it and do i need to report any capital gain when i am doing my 2017 income tax?
Hi Alex,
When you move into your show home, there will be a deemed sale at that that time. This is because you changed the use of the show home from a rental property to a principal residence.
The selling price will be deemed to be equal to the market value of the show home at the time you moved in. This could trigger capital gains tax if the home increased in value from the date you bought it. However, you can file an election to defer paying tax on the capital gain until the home is really sold in the future.
You can claim the principal residence exemption for the entire gain on your old home so long as you lived in your old home for all of the years that you owned it.
I have a home. My kids have a home in my name. We decide to sell their home. Calculations goes like this: Bought for 265,000, sell for 500,000. Two questions:
1. Is my capital gain $500,000/50% or the difference between the purchase price and the sale price?
2. Can I deduct the amount of the mortage on the place since $180,000 is still outstanding?
Thank you.
Hi Leslie,
The capital gain is the difference between the purchase price and the selling price. Only one-half (50%) of the capital gain is taxable. No, you cannot deduct the amount of the mortgage.
Hi Madan,
thanks for making this website and answering good questions.
If I refinance my home to get a loan for the down payment of an investment property, is the mortgage interest deductible?
What if I already have an existing mortgage and when I refinance, I blend the new loan to my mortgage.
Can I still expense the partial mortgage interest with a good calculation?
thanks for your help
Hi Carlos,
Yes, the interest paid is deductible in your example. If you get a new mortgage, then pro-rate the interest expense between the portion that is related to your rental property and the portion that is related to your primary residence. The portion of the interest expense that is related to your rental property is tax deductible.
Hi Allan,
Great website.
I have 2 rental properties under my name before my marriage.
Now that we are married, my wife is managing the property for me and I have a couple questions:
– Can I split the rental income with my wife
– Can I split the capital gain with my wife when I sell the 2 rental properties in the future
– Can I issue her an annual T4 income slip for doing all the work for the property management every year?
Really Look forward to your answers.
Much Appreciates,
Carl
Hi Carl,
No, you cannot split the income or gains from the properties with your spouse. You can pay her a reasonable salary and issue a T4 slip to her for property management services performed.
I missed a few important items in my last post.
I’m not sure how to address my situation. I am Canadian living in the US. I have a condo in Canada which I rent out. For tax purposes is it better to transfer ownership of my condo to a family member in Canada? Or is it better to sell it in Canada? The value of the condo is less than what I bought it for? Any advice on how taxes will be impacted and advise on how to handle this this would be greatly appreciated.
Hi Mona,
If you think that the condo will go up in value and/or generate positive cash-flow, then you should keep it. Otherwise, consider selling it. If you keep the condo as a rental unit, then remember to remit a monthly tax to the CRA for 25% of the gross monthly rents collected. You can recover most of this tax by filing an annual Section 216 Non Resident Tax Return with the CRA.
If you sell the condo, the buyer’s lawyer will be required to hold-back 25% of the sales proceeds. You can get this money back by obtaining a Certificate of Compliance from the CRA. When submitting an application for a Certificate of Compliance, you will be required to attach a cheque for 25% of the capital gain (if any).
Hi, great post.
I have a question regarding this. I own a commercial unit (located in a mall), which I have been trying to rent out since purchase in 2014. But despite all my efforts, I was not able to rent out the unit. It stayed empty for all these years and I had to pay many fees per year (interest, maintenance, advertising) I wonder if I can claim rental loss for this unit?
Thanks!
Huang
Hi Huang,
So long as you can prove that you were actively searching for a tenant for all of this time, and the unit was ready to be rented, then you can claim a rental loss for each year that the unit was vacant.
It’s likely that you will be audited, because of the multiple years of losses that you are claiming.
Are some properties exempted from capital gains because they were purchased a long time ago?….grandfathered?
Hi Dawn,
Properties acquired before 1971 are only subject to capital gains tax based on their appreciation from 1971 and onward.
Hi
if I sell my princialy home and move to my rental home ;than sell my rental home after few year do I have pay capital gain
Hi AL,
If you move into your rental property, then there is a ‘change in use’ in the property from rental to personal use. As a result, there will be a deemed sale on the date you move in. The sales amount is equal to the market value of the property. This can cause a capital gain if the market value is higher than the amount that you paid to purchase the property. However, you can file an election to defer the income inclusion of the capital gain until you really sell the property.
Furthermore, you can claim the principal residence exemption only for the years that you live in the property.
Hi
My parents sold their principal residence in 2016. We hired a realtor and paid him commission for the sale of the property.
Is the commission or the taxes on the commission tax deductible? If so, what form should be completed?
Hi, Anand. Commissions and legal expenses paid to sell a property reduce the capital gain realized on sale. If the property is your primary residence, the capital gain is not taxable.
Very informative forum. Very kind of you to help people. I am looking for some basic help with Schedule 3. Bought a condo in 2009 for say $100K as a principal residence. Changed it to a rental property in 2012 (FMV= say $150K, per realtor). Sold it in 2016 for say $130K. The 2009 purchase price doesn’t reflect CMHC insurance, land transfer, legal fees, etc. The 2016 sale price doesn’t reflect legal, mortgage break/discharge, pre-close repair costs, etc. There is no CCA. What should go in proceeds of disposition, adjusted cost base, and outlays & expenses?
Hi, KG. The ACB is equal to the FMV of the property as of the date the property was converted into a rental property from a principal residence (i.e. $150,000). You cannot add closing costs on top in order to increase the ACB.
Mortgage discharge fees, legal fees, and commissions can be deducted from the selling price to arrive at the net proceeds. The difference between the net proceeds and the ACB/UCC will result in a terminal loss in your case.
Hey Allan,
I’m moving into a rental property I own and will have capital loss due to the deemed disposition. Can I claim future realtor fees in the outlays and expenses (from dispositions) section? I plan on selling the property in 12-24 months..
Hi, Ben. You cannot have a ‘capital loss’ on real estate sales. I think you mean that you have a ‘terminal loss’. Yes, you can deduct selling costs to determine the terminal loss.
Dear Allan,
I am trying to establish a link between non-residence and the taxes involved with the sale of a property. according to the information above, if I sell my primary residence, I will be exempted from the 25% Tax through the PRE law. On the other hand, if I sell my property because I plan to do a non-residence application, I would have to pay departure Tax of 25% of the gross value if sold or 25% on the gain if deemed sold. Can I actually file my non-residence application, keep the property and still get the PRE?
Hi, George. Departure tax does not apply to Canadian real estate, regardless if the property in Canada is your primary residence or a rental property. However, if you sell a Canadian property while you are a non-resident of Canada, then the buyer’s lawyer will hold-back 25% of the sales proceeds. You can recover the taxes withheld by obtaining a Certificate of Compliance from the CRA.
Hi,
I’m a 99% owner of a rental property and my brother is a 1% owner but he is a non-resident. When we sell the unit, will the buyer’s lawyer be required to hold back 25% of his 1% interest or 25% of the gross selling price?
He hasn’t filed any paperwork here in Canada or had 25% of his ownership interest held-back or filed since the property was registered 2 years ago. My question is, can we retroactively file this or can we just elect to remit 25% to CRA ( 25% of 1% of the gross $31,000 rent is only $75.)
Appreciate your insight in advance.
Thanks,
Paul
Hi, Paul. The buyer’s lawyer will hold-back 25% of 1% of the sales proceeds. So if the house is sold for $1,000,000, then $2,500 will be held back (i.e. $1,000,000 x 1% x 25%).
Hi,
I entered a Joint Venture agreement with two other people but we did not form a corporation. We just had a written agreement to purchase two rental properties. I was on title for one of the properties while another partner was on title for the other property. We have sold the two properties and I was wondering how captial gains tax will be calculated. Will it be based on the JV agreement meaning each of us will be taxed individually on our own share of the profits? or will the tax be applied based on who was on title? Much appreciated for your feedback!!
Hi, J_Ade. The allocation of the gains realized from the sale should be allocated to each JV partner based on the JV agreement.
Thank you very much for the information.
Hello I have a guestion. In 2006 bought a new home for our son, he did not move in so we rented the home until 2010 when my son moved in. He started paying rent just to cover the mortgage. Now my husband passed away and I want to gift the home to my son. He wants me to move in with him but the home is too small. Can I sell the home and buy bigger then move in and claim it as my principle home and not pay taxes?
Hi, Vera. You cannot claim the principal residence exemption for the years that you did not live in the home. Selling the home could result in a capital gain.
Great video. We are Americans who own a shore-front property near Summerside, PEI, and we are thinking of selling it and buying a more expensive property in Montreal. If we reinvest the proceeds from the PEI house in Montreal, would we avoid taxes? Otherwise, we will probably have a capital gain of about 100k and would be taxed on 50k of that, and I don’t know if that tax could be deducted from our US federal taxes. What do you think would be the best course? Thanks in advance.
Hi Dave, thank you for your question. Unfortunately, you cannot defer the payment of capital gains taxes by reinvesting the sales proceeds into another project / property. As you indicated below, you will have to pay capital gains tax in Canada and in the US because you are a US citizen. You can receive a foreign tax credit on your US tax return for a portion of the Canadian capital gains taxes paid.
If I purchased a property as rental , paid gst when purchasing, and never lived in it.
Then I decide to sell that property to someone who wants to continue to utilize that property for rental income. Is GST applicable to be paid. ALBERTA
Hi Peter, GST is not applicable on the resale of residential properties, even if they are rented.
I have been following your post but need specific clarification on the following:
I have a vacation condo property in India before I became PR here. I now plan to sell that property. I am wondering on the calculation of cost of sale for that property as at the date of landing. I did not do an appraisal at the time of landing but in India they have a system of indexation for inflation. I am planning to use this indexation method to calculate the deemed value of property at the date of landing for Canadian tax filing.
Can you advise if you see any issue with this approach? thanks
Hi ,
I brought a house with my mother in 2014. We are co-owner of the house, the house has been my mom’s primary residence since then. In 2015 I moved out, and In 2016 I brought a house with my husband. If my mom sells the house that we brought together in 2014, do I have to pay capital gain since I only leaved there for about half a year?
Hi Anna, you will only be able to claim the principal residence exemption for the year that you lived in the property, and not the other years.
Hi,
I own a cottage with my siblings, which we inherited about 15 years ago. I am selling my share to one of the siblings. How do I determine the capital gains (if any) on the sale? I see there is an arm”s length category for sales and wonder if this applies.
Thanks, CfH
Hi, there could be a capital gain on the transfer of your share in the family cottage to your sibling. The transfer price must be set at market value.
For example, assume that an appraiser valued the property at $1,000,000 on the date of inheritance, and your share is 25%. In this case, your ‘cost amount’ of the property is $250,000 ($1,000,000 x 25%). If the property has increased in value from the date of inheritance to the date of the transfer to your sibling, then you will have to pay capital gains tax on your share of the increase (i.e. the amount in excess of $250,000 in my example).
Hi my name is Pierre. I live in Montreal and my question is if I renovated a condo (owner occupant) can I deduct the hours I worked for the renovations?
Regards, Pierre-Yvan
Hi Pierre-Yvan, as an owner-occupant, you cannot deduct your labour hours for the renovations you made.
Hello,
My fiance and I put a down deposit on a presale condo with the intentions of living in it. The building took 1.5 years longer to be built than we expected. In that time we both took on new jobs in another town and had to move. We have now taken possession of the condo and are selling it right away in order to be able to buy or build a home where we now live. Due to the fact that it took 2.5 years for our building to be constructed it has risen considerably in value. Do we still have to pay capital tax?
Hi Tyler, if you never lived in the condo, you cannot claim the principal residence exemption. As such, the gain will be taxed.
Hi, if I transfer a rental property to my father at FMV, do you know if I still have to pay CCA recapture on the sale, or could the CCA recapture be delayed until he ultimately sells it or dies?
Hi Michael, the CCA previously claimed will be recaptured into your income in the year of transfer, and cannot be delayed.
Thanks for the excellent information. Just to make sure I understand capital gains on the sale of non primary residence.
In 2017 I sold a cottage that I had purchased 5 years earlier is poor condition. I spent 4 years fixing, renovating and upgrading the property and sold it last summer to purchase the cottage next door to take advantage of a much larger property to accomodate the growing family.
Can I subtract the value of the renovations/upgrades ( these were not maintenance) from the sale price when calculating the amount that will attract capital gains?
The cottage was purchased for @$250,000. I invested $35,000 for a total of $285,000. My net on sale was $299,00 after real estate and other fees. Do I need to declare a capital gain of $49,000 or $14,000?
Thanks
Hi Nikki, you can subtract the amount you paid for the renovations from the gain. Technically, the monies spent on renovations are added to the ‘cost’ of the property, which in turn reduces the gain. In your case, the capital gain is $14,000.
Hello,
I live in Calgary Alberta Canada. I have lived in my house for 28 years. I am buying another house, and am considering renting the one I lived in for 28 years. Will I have to pay capital gains if I sell the rented house that I lived in for 28 years?I want to sell in 5 years? Thank you
Hi Rose, when you change the use of your existing primary residence (which you’ve owned for 28 years) into a rental property, there will be a deemed disposition. This means that your primary residence will be deemed to be sold at its market value at the time you begin renting it. Since you have lived in this house for all of the years that you have owned, there will not be a taxable capital gain by virtue of the principal residence exemption.
However, if you sell this house (which has become a rental property) in 5 years, then the appreciation in the value of the house in those 5 years will be taxable as a capital gain upon sale.
Hello,
I am a US citizen (living in USA) who just gifted my paid for Canadian condo to my US citizen daughter who is a Canadian Permanent Resident. She has lived in the condo for several years. The gifting of the condo was deemed a sale by the CRA and I now owe a substantial capital gains tax to CRA. Is that Canadian capital gains tax deductible or does it qualify as a possible tax credit on my upcoming 1040 US filing? No US gift tax is due. Thanks.
Hi William, since you gave a gift, you cannot claim a foreign tax credit on your US return for the Canadian taxes paid on the deemed sale.
I purchased a property for a family member, as a “rent” to own for 155,000.00. They paid me 450.00 a month that went to the balance of the purchase price. Due to circumstances, we decided to sell the property. It sold at 198,000.00. This property is in my name, so am I right to assume I will be taxed on the capital gain minus realtor and lawyer fees. If I reimburse them for the payments they made, is this considered an expense that I can deduct from the capital gain? Would they have to claim this amount as income to them? The monthly “rent” was not on my taxes as income and they never claimed the “rent” on their taxes.
Hi Mary, the $450 / month that they paid each month toward the purchase price, should have been declared as income in the year received. Since you did not do this, you have two choices:
(a) Go back and amend the tax returns for the years for which you failed to report the income ($450 / month). Then record an expense in the current year for the repayment of the down-payment money. OR
(b) Do nothing, because the monthly down-payment money received (i.e income) cancels out with the full repayment of the down-payment money (i.e. expense).
The first approach is the technically correct approach you should follow, but it could expose you to a CRA audit.
Thank you Allan for your perf3ctly explained information on these real estate issues! You have very much cleared a lot of questions that I have been looking for answers too!
Jason
Hi Jason, thank you for your positive feedback.
Can I claim a loss on my income tax return if I lost money on the sale of my home? The home was my primary residence and not an investment property. Thank you!
Hi Paul, no, you cannot claim this loss.
I own a rental property which is in my name alone. I have been claiming 100% of the rental income. My question is this: If I sell this rental property, would I be able to attribute half of the capital gains to my spouse? Are investment properties treated the same as principal residences i.e. regardless of who actually owns them, they’re considered to be jointly owned by married couples?
Some background info: I purchased the property while we were married i.e. it is not a property I brought with me into the marriage. However, due to various reasons, I had to get the mortgage and registration of the property in my name alone.
Obviously, I am asking because my spouse falls under a lower tax bracket and it would be of great benefit to me to have half of the capital gains taxed at a lower tax rate.
Hi Hamza, if the rental property is in your name only and you have been reporting the rental income and rental expenses on your return each year, then the capital gain made on the sale of the property must also be included in your personal tax return. You cannot allocate any portion of the capital gain to your spouse.
Hi I sell my commercial property and buy residential for investment purpose. Is there any tax that I have to pay?
Hi Zvonko, yes, you will have to pay capital gains taxes on the sale of the property. The gain cannot be deferred by buying another property using the sales proceeds from the first property.
Purchased home in Montreal in 1995 , 50% owner with my mom. In 1999, I moved out (i.e. no longer my primary residence), my mom continued to live there, both names still on the property. No rental revenue on this property.
In 2018, my mom passed away. House is now on the market for sale. I want to determine what I would owe in tax (capital gains). Originally the cost for me in 1995 was $60,000, selling now 400K, of which 50% is for me, and 50% for the estate. What would I owe, and what would the estate owe in taxes? Thank you
Hi Francis, your mom’s estate can claim the principal residence exemption for her share of the gain made on sale, so long as she lived in the property for all of the years she owned it. However, you will be subject to taxes on your share of the capital gain of $140,000 ($200,000 less $60,000). You can claim the principal residence exemption for the years that you lived in the property (1995 to 1999), and this will reduce part of the taxable capital gain.
Hi … I’m dealing with a long owned Cottage property that is now part of my mother’s estate and must be deemed disposed.
1. I know she talked about it, but is there any way to check if she elected to use the $100,000 Capital gains exemption before it was eliminated?
2. She moved out of her house in 2010 and it was sold. What is involved in getting the cottage considered her primary residence from 2010 to present?
Thanks
Hi John, if you are the executor for your mother’s estate, then you will have to contact the CRA to verify if the capital gains exemption of $100,000 was ever claimed by her. For a cottage to be a primary residence, the owner (or spouse or child of the owner) must have lived in the property on a regular and continuous basis.
I have sold my previous townhouse last year which I moved out 4 years ago. I understand this will generate capital gain. However I am just wondering if the property tax, management fee, mortgage interest can be used to deduct the capital gain?
Hi Allen, property taxes, management fees and interest will not reduce the capital gain.
My brothers and I owned a condo that our Mother had lived in free of charge for over a ten year period. Upon her transfer to an old folks home, we sold the property 6 months later. Can the utility, condo, insurance and property tax expenses over the 6 month period be added to the ACB despite no rental income being received? I was thinking of adding the expenses from the time the condo was vacant until it was sold. Thanks in advance.
Hi Ken, utility charges, condo fees, insurance premiums paid, and property tax expenses cannot be added to the ACB (cost) of the property.
tExcellent Informatiion. As a Realtor, I would share this article for the benefit of my investor clients.
Hi Mahesh, Thank you for your positive feedback.
hi if i accept her share of the house back as part of my equalization payment meaning she will transfer title solely to me is it taxed?
Hi Larry, the transfer of a property from one spouse to the other as a result of a separation / divorce, will not trigger capital gains tax nor income tax.
Hello,
Is there any maximam tax amount cap on capital gain, like you made a 200K out of a deal and your emplyment income is 60K how much you will pay on capital gain
Hi Shahzad,
One half of the capital gain will be included in your income. If you made $60,000 from employment and realized a $200,000 capital gain in the year, your total tax bill on all sources of income will be $54,527, less payroll taxes already deducted from your paychecks.
Hi,
I am planning to sell a real estate in Mumbai India which before migrating to canada in the year 2001 it was my business and after my migrating the company was still functioning as I had a worker working on his own before he left the work place in 2014 and since then it is closed and now I have decided to sell the place. place was bought in 1984 for about Rs.175000 ($3125) and now I may get around Rs. 11000000.00 ($196000) what would be the capital gain for it and would want to know if I could come and talk to you about it before I put it up for sale. When I migrated to canada the approximate value of the propert was around $22000.
Hi Vijay,
The cost basis of your Indian property for Canadian tax purposes is equal to the fair market value of the property when you came to Canada (i.e. $22,000). You must use the exchange rate on the date you came to convert INR into Canadian dollars when calculating the cost basis.
The sales proceeds should be converted into CAD$ using the exchange rate at the time of sale (i.e. $196,000 in your example). The capital gain is equal to the difference between the sales proceeds (net of selling costs) and the cost basis. This comes to $174,000. One half of the capital gain ($87,000) will be included in your income in the year of sale and subject to Canadian income tax at your marginal rate. In order to avoid double taxation, you can claim a foreign tax credit for the Indian taxes paid. The CRA will request a copy of the sales agreement, appraisal report (for fair market value of the property as of the date you came to Canada), and a copy of the Indian Tax Return + the Indian Tax Assessment.
Please contact me at amadan@madanca.com to discuss further.
Can I deduct cost of sales (realty fees legal fees and prepayment interest penalty) from real estate income instead of deducting them from sale price to calculate capital gains tax?
Realtor fees, legal fees, and prepayment interest penalty are deductible from the sales proceeds in determining the capital gain realized upon the sale of the property. They cannot be deducted from ‘real estate income’.
I will inherit my family home that is worth $900k. I’m considering making about 250k in renovations and then selling it. If I can get at least $1.3M, I’m I going to be taxed on the difference between what the increased value of the property and the original value? Am I better off selling it “as is” or making improvements if it means a possible increased profit? Also, my father added my name on the ownership of the house a few years ago. My estate lawyer (who did not draft my dad’s will) said that by doing this, I’ll save in estate taxes but I’ll have to pay capital gains upon inheriting the house, unless my dad adds a trust declaration. Any advice on how to minimize tax implications?
Hi Maggie,
Before we can determine the tax implications of making improvements and selling the home, you first must resolve the tax treatment of you being added to the title of the property by your father. If your father, by adding you to the title, also transferred 1/2 of the beneficial ownership of the property to you, there will be a deemed sale from your father to you based on the fair market value of the property when the transfer was done. This could trigger a capital gains tax for your father. In this case, your cost basis in the property will be equal to 1/2 of the fair market value of the property on the date the transfer was made.
When you inherit the remaining portion (1/2) of the property, you will need to have the house appraised at that time. This value will become your cost basis for the remaining 1/2. Furthermore, the improvements that you make will increase the costs basis of the property, and decrease your capital gains when you sell the property in the future.
Good morning; I own a condo in Abbotsford BC, bought in July 2015 then had to move for job to other end of province so rented out property and rented in new City. So have owned property for 3.5 ish years. lived in for only 7 months. I am wondering how the capital gains is calculated. I understand it is taxed on 50% of the “profit” but I can’t figure out at what rate etc. it appears I may have a profit of approx. $160,000 so taxed on $80,500 because of only having it as primary residence for 7 months instead of 2 years and not owning for over 5 years am I taxed more. Thank you
Hi Karen,
When you moved out of the property (after 7 months of living there) and changed its use to a rental property, there would have been a deemed sale at that time for tax purposes. As a result, the ‘cost-basis’ of the property would be increased to its fair market value at the date of change-in-use (assuming the property increased in value). A certified appraiser can determine the fair market value.
If you sell the property, you will have a capital gain equal to the difference between the selling price (net of selling costs) and the cost-basis. One half of the capital gain will be included in your income in the year of sale and will be taxed at your marginal tax rate.
Consider moving back into the BC property (even for a short period of time), and then filing an election with the CRA pursuant to subjection 45(3) of the Canadian Income Tax Act. If you do this, you can treat the BC rental property as your primary residence for the purposes of the the principal residence exemption for the previous 4 tax years. In this manner, you will not have to pay any capital gains tax when you sell the property. To qualify for this election, the following conditions must be met: (a) you did not have another primary residence for which you claimed the principal residence exemption (b) you did not claim capital cost allowance on the BC rental property (c) you were a resident of Canada while the BC property was rented to a tenant.
Hello Mr. Madan,
I would like to know if I can deduct the HST I paid for a new condo in Toronto against rental income or can I deduct it only against the capital gains.
Thank you.
Hello
Planning to buy a pre construction property. Doesnit make sense to buy in wife name only ? Since she is lower tax bracket? Do i still have to split the gains with my wife if we are doing a combined tax return ?
Hi Dhiraj,
If your wife is in a lower tax bracket than you, it does make sense to purchase the property in her name, because she will pay less tax on rental income and capital gains than you. However, to avoid the income attribution rules, you must make a spousal loan to your spouse at a rate of 2% (CRA’s prescribed rate), and your spouse must use the loan proceeds to purchase the property. The interest must be paid annually. Having said that, if your spouse has her own personal savings, she can use her savings to purchase the property and does not have to borrow money from you.
Hi I have a capital gains question.
I live in canada and sold a farm held by my family. Do I use the sale price or the statement of adjustment number which has a property tax credit and a small bank balance listed on the adjustments.
Use the sales price less selling costs (e.g. legal fees and commissions).
Hi,
I have a situation I have capital Gains from India and have paid taxes to Govt of Inida. Father passed away so 50% was his share but I had to pay capital gains on the whole amount. My question is can I deduct foreign tax I paid in India, do we have a tax treaty with India to avoid double taxation. Should I fill the for T1135 as all the money from sale is still parked in a bank account. I am a Canadian Tax payer and citizen.
Hi Rakesh,
You can claim a foreign tax credit on your Canadian tax return for your share of the Indian taxes paid (excluding father). If the cash held in an Indian account is more than $100,000 Canadian dollars, then you must file form T1135 with your personal tax return.
If you own only one property but have rented it out, and are living in rental yourself, are there capital gains taxes when you sell? If so, at what rate?
Thank you.
Hi Salima,
Yes, there are capital gains taxes when you sell. For example, if your home has 3 floors, and you live on 1 floor, while the other 2 are rented to tenants, then you can claim the principal residence exemption for 1/3 of the capital gain realized on the sale. The remainder of the capital gain will be subject to tax (subject to the 50% rule for capital gains).
Hi Allan and the team,
Me and my husband and a relative purchased three resale condo units back in 2015 and 2016 and intended to keep them as our rental properties (in Vancouver, Canada). However, the constructions were delayed for two years and due to mortgage rules tightened in 2018, we were only able to complete one unit and as of the result, we assigned the other two units to two different buyers.
Here are my questions on treatment on proceeds:
1) Can we claim proceeds from assignments of sale as capital gain since we intended to keep them as rentals? (I wasn’t sure the profits should be treated as business income because we didn’t intend buying to assign)
2) Should the three of us claiming the profits through partnership on the tax return?
3) I am in a lower tax group, can I claim all of the profit between me and my husband or it is required to claim the profit 50/50?
Thanks so much!
Cherie
Hi Cherie,
Profits from assignment sales are classified as ‘business income’ for tax purposes and not capital gains. Business income is fully taxable. Each partner should report their share (33.33%) of the profit on from T2125, Statement of Business Income & Expenses. If the total assignment sale profit is $30,000 or higher, then the federal GST/HST must be charted to the assignee.
Hi Allan,
My parents own some property which they have been renting out aside from their primary residence. If they sell one of these properties and directly invest in another income property is there any capital gains they would need to pay?
Thanks!
Hi Ray,
Your parents will not be able to avoid or defer capital gains tax on the sale of their rental property by investing the sales proceeds into another property.
10 years ago I bought a vacant residential lot in British Columbia, Canada. I intend to sell this land soon. Unfortunately the land values have declined and I expect to incur a capital loss from this transaction. Please advise, under Canadian Tax Code, if I can carry forward such capital loss to offset any capital gains from sale of securities in the future.
Hi Deepak,
The capital loss realized on the sale of the land can only be applied against capital gains realized on the sale of assets, including real property and marketable securities. Capital losses do not expire.
Hi – You mention that you can offset your capital gains via capital improvements, such as replacement of windows. In my case, I’m filing for a deceased person and I don’t have the receipts for the capital improvement even though they were done (as there were only wood windows in the 50’s and the new windows are aluminum, double pane glass which did not exist in the 50’s). Is it still possible to offset the capital gain with the fair market value for the replacement windows. What proof is necessary (pictures, etc.) or does one absolutely have to have receipts. Also, is there a certain time after the improvement where the improvement no longer can be deducted (ex: windows 20 year life however windows were replaced 25 years ago). Same is true for roof replacement where no receipts exist. Can these also be deducted. Thanks for all your help.
Hi Giudeb,
Make an estimate of the costs incurred for the capital improvements undertaken, including replacement of the windows. The cost paid for capital improvements can be used to reduce the capital gain, unless the capital improvements were fully depreciated by claiming capital cost allowance (CCA). Note: The CRA’s policy is that they require receipts for capital improvements made, so they may reject your claim if you are unable to provide them.
Hi, I’m renting a house to my son. I will be selling it in 4yrs to him. I bought it for 260000. I suspect it is worth 250000. now, as prices are following. I would like to gift most of the proceeds of his rent to his downpayment and sell the house at 245000 with 45,000 downpayment gift. In 4yrs the mortgage will be at appox. 185,000 principal left. Will this trigger any capital gains taxes. Also my principal residence was 115000. when purchased 2005. I could now likely sell it for 250000. I decided to run a small home business with 2 rooms. For the last 5 years. I have never had it appraised. My business only captures less than 5000. a year. Will this affect capital gains taxes when I sell it? If so would they base it on the when I started the business or when I bought the house. Thanks in advance.
Hi Phyllis,
You will not have a capital gain on the sale of your home to your son, because the sales price is less than the amount that you paid for it. Also, you do not have to pay taxes on the amount gifted to your son for the down payment.
With respect to your primary residence, you will have a capital gain when you sell it. This is because the estimated sales price is more than the amount that you paid for your home, and you used 2 rooms of your home for business purposes. To determine the taxable portion of the gain, multiple the entire gain by a specified percentage. This percentage is equal to the size of the home-office space divided by the size of your home. For example, if the gain on the sale of your home is $200,000, and your home office comprised of 20% of the entire living space of your home, then the capital gain will be $40,000 (i.e. $200,000 x 20%). One half of this capital gain (i.e. $20,000) will be included in your income in the year of the sale.
Hi Allan,
My sibling and I had a real estate agent provide a market valuation for my dad’s condo (principal residence exemption applies). The agent provided an FMV of $500k, however, if the house was listed on the MLS it could fetch in the range of $550k to $600k, depending on the interest. My question is the following:
Does the estate deduct the real estate commissions, legal, other selling costs to arrive at the net proceeds of disposition reported on the tax return when arriving at the taxable capital gain if it was sold on the MLS
between the $500k and the selling price?
Thanks
With general partnerships, can the capital gain be split 30/70 or 20/80 instead of 50/50 for tax?
Hi James,
Income and gains must be split in the manner specified in the partnership agreement. It cannot be arbitrarily changed.
When buying a house for investment can we put in 3 names without creating a partnership company?
Hi Rose,
If there are 3 names on the title to the property and all 3 of you will share in the profits, then this arrangement is a General Partnership. A general partnership does not need to be registered with the CRA. However, each partner must report their share of the annual profits on their individual tax return.
Hi there,
me and my spouse own a rental property for about 11 years. If we decide to tell it and then buy another property within the same year, do we still have to pay the capital gain?
Or if we sell our principal resident and move in to rental property and live there for min. two years later we decide to sell it, will still be capital gain?
Thank you so much!
La
Hi Lamoul,
Even if you sell your rental property and reinvest the sales proceeds into the purchase of another rental property, capital gains tax is still payable on the profit made on the sale. In addition, if you change the use of a rental property to a primary residence, then you are deemed to have sold the property for its market value and capital gains tax becomes payable.
Thanks for the very informative video and information!
I have a question with regards to the sale of a rental property. The rental property was not rented out in preparation for the sale of the property. Normally the property taxes, utilities and other maintenance costs would be deducted from the rental income. However since the property was sold within the year without rental income, would these costs be included in the final T776 as a net loss? Or can they be included as part of getting the property ready for sale and included in the calculation for capital gain?
Thanks so much!
Hi Jude,
I’m assuming that the property was previously rented and that you owned the property for at least one year before selling it. If my assumption is not correct, then the CRA’s new flipped property rules would apply and the profit would be taxed as business income.
If my assumption is correct (i.e. the property was previously rented and you held it for at least one year), the carrying costs (utilities, insurance, property tax and mortgage interest) incurred during the vacancy period cannot be deducted from the capital gain and cannot be reported on form T776 (rental income and expenses).