How to Defer Capital Gains Tax on Real Estate Sales Watch Video
Allan Madan, CPA, CA
If you have a capital gain on the sale of real estate but have not received the entire payment, 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.
I have two investments property as rental units. I have sold one with a closing date of September 1, 2016. The capital gains is about $60,000. How can I defer the capital gains tax?
Thank you.
Eva
Hi, Eva
If you received all of the sales proceeds on closing, you cannot defer paying tax on the capital gain that arose on sale.
My husband just sold his primary residence. We are now living in my home. We got married July 2nd, 2016. Can he maximize my interest free account of 52k as well as his, Without any CRA difficulties?
Hi Tracy, do you mean TFSA account? If yes, he can do that.
Good article
You answered one of mine long run question. Thank you so much for your nice suggestion how to get rid of gain tax.
Hi Anjan,
You’re welcome.
Why can’t we have a 1031 tax law and allow small real estate developers to grow larger. If the GOC needs some affordable housing, the best way to get this is to have moire developers able to grow large enough to undertake this investment. As it stands now, developers are restricted in growth and simply hold their properties, retire their mortgages and collect cashflow and then retire altogether. Sad use of our investment resources. Only REITS are now capable and they are slow to respond or dis-interested.
Hi Neil,
Thank you for your feedback. I agree with you in that Canada should have a similar rule to the US for 1031 exchanges.
Convincing the buyers to pay in 5 installments may not be simple. It could also be risky to you as the seller. Most purchase proceeds are financed by banks and so, unless the bank gets into the act, the suggested idea is a non-starter.
Are there financial services out there helping you to hold the proceeds, divvy them up into 5 installments and give them to you? What about a middleman in flipping the sale for a fee such as he buys it from you and sell to the buyer at the same time?
Thanks?
There are secondary lenders that could lend to you, but keep in mind that the interest rates they charge are very high, usually 10% or more per year. It’s unlikely that a middleman will want to get involved, because he/she will have the same issue – waiting for a long period of time to collect the sales proceeds in full.
I need advice on Capital gain on real estate and would like to find out if property is bought and sold under the corporation (small business) will it help to defer capital gain taxes, if amount is re-invested in another house with creating new corporation.
Hi Salim,
Capital gains from the sale of a property cannot be deferred by reinvesting the sales proceeds into another property, whether or not the property is sold by an individual person or a corporation.
Hello,
We are in exactly the same position. Sold a jointly owned family cottage, closing date October 2018. family infighting and litigation months later, we finally received our share in July 2019. During this time, we had no idea how much money we would be getting or what we could deduct (lawyers fees for litigation, real estate etc) Unfortunately, I received bad advice from our tax return fellow, and he did not file this capital gains reserve. Can this still be filed for the 2018 Tax year?
thank you
William
Hi William,
If you have not received the entire sales proceeds (i.e. the buyer still owes money to you), then you can go back and amend your previous tax return to claim the capital gains reserve.
Hello,
Can I collect all the money (cost + proceeds) for selling of my rental property on sale closing date and still create a reserve for capital gain purposes or I must collect the money from the buyer on installments in one to five years. As collecting the money in mutable years have some risk.
Hi Emad,
You cannot collect all of the sales proceeds on closing AND still claim the capital gains reserve. However, if the buyer pays the purchase price in installments, you can defer capital gains tax up to 5 years.
X husband and I sold cottage. I received half of the funds from the sale. The other half is with my lawyers firm. I received the first half in 2019. I will be receiving the other half when x husband signs settlement agreement, which is now taking 6 months. Can I defer?
Hi Dar,
The seller paid the entire sales amount in full. As a result, you cannot defer the payment of capital gains taxes because of a dispute with your ex-spouse.
I have transferred a property to a family member and my accountant shows a tax payment of almost $40K because of Capital gains. How can i reduce the tax on capital gains?
Hi Pragya,
If you transferred the property to a family member, other than your spouse, the transfer is deemed to occur at fair market value. If the property has appreciated in value, then there will be a capital gain. You could have rolled over the property to a corporation on a tax-free basis (using Section 85 of the Income Tax Act), in exchange for fixed-value shares of the corporation. Then, new common shares could have been issued to your family member so that he/she could enjoy the future growth in the value of the property. At this stage, your best option is to make an RRSP contribution to reduce your personal tax.
If I sell my property duplex, $400,000 and by another duplex with in 3 months $450,000, Do I have to pay any capital gain?
Since I bought the identical property with in 3 months and no cash flow leftover, in that case can I deferral my capital gain.
Thanks in advance for your support.
Hi Noor,
No, you cannot defer capital gains tax by selling your existing property and then buying another property within 3 months of the sale. Canada does not have capital gains tax deferral rules like the US does (1031 exchange).
Hello Sir
Can you defer the cap gain in Canada buy using the all the proceeds to buy another investment property ?? within 180day or sale??
Hi Jo,
No, you can not defer a capital gain by using the sales proceeds to purchase another investment property.
Let’s say the capital gains reserve is utilized on the sale of a property and proceeds are collected over 5 years. Because the annual income from a fifth of the proceeds keeps me in a lower tax bracket, do I ultimately pay less capital gain via the deferral than had I paid it all in the year of sale? Or are the annual tax payments still relative to the gain from total sale price?
Yes, you should pay less capital gains tax overall because of income-averaging.