Capital Gains and The Real Estate Transaction

By
Real Estate Agent with RE/MAX Aboutowne Realty Corp

Capital gains tax is one of the most common areas of questioning I receive as a real estate practitioner. Capital gains typically do not apply to home sales in Canada, except where the home is not the seller’s principle residence. While I am no tax expert, the following information may help. For more details on Capital Gains Tax you can visit the Canada Revenue Agency Website

 

What is Capital Gains:

Defined as any profit received from the sale of an asset over its cost. A taxable capital gain is the amount to be included as income on a tax return and is calculated to be 50% of net capital gains (capital gains minus capital losses for the year).

An unrealized capital gain is the capital gain that builds up on an asset before the asset is sold or deemed sold. A realized capital gain is the taxable capital gain that results when an asset is sold or deemed sold.

 

Real Estate Transactions:

Profits from the sale of an asset would most likely be taxed as regular business income if the taxpayer buys and sells real estate on a regular basis (e.g. real estate investment is deemed to be the taxpayers line of business).  However, if the taxpayer can prove that these sales were part of an investment program and not their main line-of-business, then there may be a case for capital gains treatment of the profit.

 

Exemptions:

The most common exemption for a real estate practitioner to consider involves the sale of a principal residence. A property qualifies as your principal residence for any year if it meets the following four conditions:

 

1. it is a housing unit (house, condo, houseboat, mobile home), a leasehold interest in a housing unit, or a share of the capital stock of a co operative housing corporation;

2. you own the property alone or jointly with another person;

3. you, your current or former spouse or common-law partner, or any of your children lived in it at some time during the year; and

4. you designate the property as your principal residence.

 

The land on which your home is located can be part of your principal residence. Usually, the amount of land that you can consider as part of your principal residence is limited to 1/2 hectare (1.24 acres). However, if you can show that you need more land to use and enjoy your home, you can consider more than this amount as part of your principal residence. For example, this may happen if the minimum lot size imposed by a municipality at the time you bought the property is larger than 1/2 hectare.

Note: Tax laws change continuously. You should consult a qualified accountant or tax lawyer to discuss your specific tax situation.

Posted by

David Archibald

Real Estate Sales Representative

RE/MAX Aboutowne Realty Corp.

david@westendproperties.ca

416-938-9951 (direct/mobile)

905-842-7000 (office)

905-842-7010 (fax)

 

www.westendproperties.ca

 

Residential Sales - Leasing - Investment Properties

 

Your best interest is my top priority!

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