Understanding Capital Gains Tax And Canadian Real Estate
Unsure how much you will have to pay on capital gains tax for real estate? It is important to understand How much is owed, When it is due and how you can limit the amount you actually need to pay.
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When Do You Have to Pay Capital Gains Tax in Canada for Real Estate?
If you own real estate in Canada, you might be wondering when you have to pay capital gains tax. According to the Canada Revenue Agency (CRA), you are considered to have made a capital gain when you sell, or are considered to have sold, a capital property for more than the total of its cost and the expenses incurred to sell it.
A capital property is an asset that you buy as an investment or to earn income. This does not include the trading assets of a business, but it does include homes (other than your primary residence), cottages, securities, and any land, buildings, or equipment that is used in a business or rental operation.
This matters for real estate purposes as you are required to list the sale of any property on your income taxes for the year that the property was sold. However, if you make a profit from the sale of your primary residence, you can receive an exemption on paying capital gains tax.
When you sell a property that is not considered a primary residence, you will be charged taxes on the sale. If you buy a property, rent it out, and then sell it for a profit, the CRA will likely consider this a capital gain. However, if the CRA believes that you purchased and sold a property for the primary purpose of making a profit, you could be required to pay taxes on the profits as business income, which will be costlier.
How Much is Capital Gains Tax on Canadian Real Estate?
If you sell a property and earn a capital gain, you will be taxed on 50% of the profit. For example, if you buy a property, rent it out to earn income, then sell it and earn $50,000, you will pay tax on $25,000 at your marginal tax rate.
However, if the CRA believes you bought and sold a property with the primary intent of making a profit on the sale, the money you make from the sale will be considered business income and you will be taxed on 100% of this profit. An example of this situation is “house flipping,” where someone buys a home, renovates it, and then sells it for more than they paid.
When determining whether you are required to pay capital gains taxes or business income taxes, the CRA will look at the conditions of the purchase and sale of the real estate in question.
Help with Capital Gains Tax
It’s important to keep good records when you are buying or selling real estate. As with all tax issues, having all necessary documents and numbers available will help you explain your situation to the CRA.
If you find yourself in a situation where the CRA is claiming that you have misrepresented your income or that you have not properly explained your real estate transactions, you may find that it is tough to communicate and negotiate with the agency. If you need help, contact Farber Tax Solutions today. Our expert team understands CRA processes and can communicate and negotiate with the CRA on your behalf.
Farber Tax Solutions can help you successfully deal with CRA problems. We utilize the experience of our tax experts to:
- 1| Offer a comprehensive solution that is focused on achieving the most favourable possible outcome for your tax issue;
- 2| Communicate with the CRA on your behalf and navigate the entire CRA dispute process; and
- 3| Offer a complete solution to your tax problems, including ex-CRA professionals and tax lawyers from Farber Tax Law.