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Royal LePage
Royal LePage

Navigating Canada’s Capital Gains Tax

When selling an investment property in Canada, it is important to understand the implications of capital gains tax, which can significantly impact your net proceeds from the sale.

What Are the Basics of the Capital Gains Tax?

  • Capital gains tax is applied to the profit (capital gain) from the sale of an investment property.
    • To calculate your capital gain:
      • Subtract the property’s adjusted cost base (purchase price + capital improvements) from the sale price, minus selling costs.
    • Only a portion of the capital gain is taxable and added to your income for the year.

Tax Rates (As of June 25, 2024):

  • Individuals:
    • For gains up to $250,000, 50% of the profit is taxable.
    • For gains over $250,000, 67% (two-thirds) of the profit is taxable.
  • Corporations and Most Trusts:
    • 67% of the capital gain is taxable, regardless of the profit amount.

Exemptions to Tax Liability:

  • Principal Residence Exemption:
    • If the property was your principal residence, the proceeds from the sale are generally exempt from capital gains tax, provided certain criteria are met.
  • Lifetime Exemption:
    • As of June 25, 2024, the lifetime capital gains exemption increased from $1,016,836 to $1.25 million, indexed to inflation.

Tips for Minimizing Capital Gains Tax:

  • Time Your Sale:
    • Selling during a low-income year can reduce your overall tax burden, as capital gains are taxed at your marginal tax rate.
  • Leverage Capital Losses:
    • Offset your capital gains by using capital losses from other investments.
  • Include Selling Costs:
    • Real estate commissions, legal fees, and closing costs reduce your taxable gain.

Tip: Keep detailed records of all selling expenses to reduce your tax liability.

Final Thoughts

Navigating Canada’s capital gains tax requires careful planning and professional advice. By understanding the rules and strategies available, you can manage your tax liability and maximize your returns from selling an investment property. Consult the Government of Canada’s website for complete details.