Are you getting ready to list your home or commercial property for sale? Certainly, it’s a great time to be selling in Calgary. There’s considerable demand from buyers.
One thing that might not come to mind right away is the issue of capital gains tax. Here’s the basic information to know about how it works and when it can impact your profit.
Properties are treated differently
The first thing to know is that not all property sales are subject to capital gains tax.
Is the home you’re selling your principal residence? Then you have nothing to worry about. Canada Customs and Revenue (CRA) provides an exemption from paying capital gains tax if you’ve lived in the house while owning it. Keep in mind that you must still declare the sale of the property when you file your personal income taxes and request a capital gains exemption.
Perhaps you’re planning to sell the family cottage or an apartment building that you’ve been renting to tenants. Since these aren’t places where you reside (even if you spend summers at the cottage), you’ll be assessed capital gains tax on the transaction.
Essentially, you’re taxed on 50% of the profit you’ve made when comparing your initial purchase price to the amount the property sold for. There’s a calculation involved that considers costs such as renovations and improvements, sales commissions, legal fees, and other expenses you may have had.
Avoiding capital gains tax
Here are the basic ways to avoid paying capital gains tax.
Offset with capital losses
Claiming a capital loss is one way to avoid paying capital gains tax, or reduce the amount you have to pay. Do you have other assets that have declined in value? Take a look at whether you have any investments you can sell off where you can claim a capital loss.
Time the sale
Do you expect your earnings to be lower next year? Maybe you plan to retire on a reduced income or take a leave of absence from work. In that case, you might want to put off selling until you’re in a lower income tax bracket to reduce the capital gains taxes you’ll have to pay.
You can decide to donate your property to a charitable foundation. This will avoid owing taxes on the profits of the sale. Plus, helping others feels good! You can also donate corporate stocks, buildings, land, and/or equipment used in business.
While earning a profit on the sale of real estate is certainly a good thing, understanding the impact of capital gains tax is important. Getting further advice from your accountant is always helpful.
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