Capital Gains and Real Estate Investments
Many real estate investors are concerned about reporting real estate transactions to the Canada Revenue Agency (CRA) and having to deal with the tax implications arising from these transactions.
Normally when you sell your principal residence (the property where you regularly live), there is no tax on any gain generated by a market value increase.
You may designate one property as principal residence per family unit (single or husband and wife).
If you purchase an additional property to renovate and sell with the intention of making a profit, you are obligated to report to CRA any capital gains or losses generated from this transaction.
Some investors mistakenly avoid real estate transactions in fear of paying high income taxes. Allow me to dispel this myth.
Your gain on a real estate transaction is calculated as:
Proceeds of Sale minus Adjusted Cost Base minus Outlays and Expenses Incurred to Sell the Property = Gain/Loss
• Adjusted Cost Base = purchase price plus legal fees, land transfer taxes, and expenses for labour and materials spent to improve the property.
• Outlays & Expenses = maintenance fees, property taxes, interest paid on the mortgage to finance the property plus any legal and commission fees associated with sale of the property.
Capital Gains are the most tax effective way of earning income because only 50% of capital gains are taxable.
If you generate a $20,000 capital gain on your real estate transaction, only $10,000 is added to your income and taxed at your marginal tax rate.
Percentage of tax depends on your annual income.
Under federal tax laws, taxes have to be paid, but the laws also provide: credits, deductions, refunds, and other entitlements.
Prepared by Oksana Mikouliak
Canadian Tax Credit Consultant