How Is Capital Gains Tax Calculated on Real Estate in Canada in 2024?

Capital Gains Tax Calculated on Real Estate in Canada in 2024

What Are Capital Gains?

A capital gain occurs when you sell a property or investment for more than its adjusted cost base (ACB). Conversely, if the sale proceeds are lower than the ACB, it results in a capital loss.

Capital Gains Tax on Sale of Property: Taxable at 50% of the gain, the amount is added to your taxable income.
Capital Losses: Not taxable and only available for non-depreciable assets, such as land, shares, or other investments.

Capital Gains Tax on Sale of Property in Canada

Capital gains tax applies to properties and investments such as:

Buildings, land, and cottages.
Shares, bonds, and mutual funds.
Equipment used for business.

In Canada, 50% of the capital gain is included in your taxable income. The actual tax on the sale of property depends on your marginal tax rate, which varies by income and province, such as capital gains tax in Ontario.

How Is Capital Gains Tax Calculated on Real Estate?

To calculate capital gains tax on sale of property, you’ll need the following:

Proceeds of Disposition: The amount received from selling the property.
Adjusted Cost Base (ACB): The original purchase price, including costs like renovations and legal fees.
Outlays and Selling Expenses: Costs incurred to sell the property, such as commissions, legal fees, and advertising.

Example:
If your capital gain is $20,000, 50% is taxable ($10,000). The tax rate applied depends on your marginal tax rate and your province of residence. Use a capital gains tax calculator Canada or consult a professional for accurate calculations.

How to Minimize Capital Gains Tax on Real Estate

Here are some strategies to lower your capital gains tax:

1. Timing Your Sale

Sell during a low-income year to benefit from a reduced tax rate.
Delay sales until after January 1 to defer taxes to the following year.
Pair capital gains with capital losses to offset the taxable amount.

2. Use the Principal Residence Exemption

If the property is your primary residence, you may qualify for an exemption, eliminating capital gains tax on sale of property.

3. Charitable Contributions

Donate appreciated assets like stocks to avoid triggering capital gains tax while claiming a tax credit.

4. Offset Capital Gains with Capital Losses

If you incur a capital loss, use it to offset gains from other investments. This reduces the overall taxable income from capital gains.

5. Lifetime Capital Gains Exemption (LCGE)

Canadian residents operating small businesses, farms, or fishing properties can use LCGE to reduce their taxable gains. To qualify, the business must have 90% of its assets in active Canadian operations.

6. Capital Gain Reserve

If you sell a property under an installment plan, you can defer part of the taxable gain using the capital gain reserve, spreading the tax over five years.

Using a Capital Gains Calculator Canada

To simplify the process, you can use online tools like a capital gains calculator Canada. These tools calculate your taxable gain based on the proceeds of disposition, ACB, and your marginal tax rate.

Need Help With Capital Gains Tax?

Accurate reporting of capital gains tax on sale of property is crucial to avoid costly mistakes. At Qmulus CPA Professional Accountants, we specialize in minimizing taxes while ensuring compliance.