Capital Gains Taxes: Sold Your House in 2016?

capital gains tax ontario

Capital Gains (an overview)

The whole topic of capital gains is complex and much misunderstood. Seek professional help. For the purposes of this article we need to keep it simple – which is not easy. From CRA’s perspective generally, when you dispose of a property and end up with a gain or a loss, it may be treated in one of two ways:

  • as a capital gain or loss (capital transaction); or
  • as an income gain or loss (income transaction).

When do you have a capital gain or loss?

Usually, you have a capital gain or loss when you sell or are considered to have sold capital property. The following are examples of cases where you are considered to have sold capital property:

  • You exchange one property for another
  • You give property (other than cash) as a gift
  • Shares or other securities in your name are converted
  • You settle or cancel a debt owed to you
  • You transfer certain property to a trust
  • Your property is expropriated
  • Your property is stolen
  • Your property is destroyed
  • An option that you hold to buy or sell property expires
  • A corporation redeems or cancels shares or other securities that you hold (you will usually be considered to have received a dividend, the amount of which will be shown on a T5 slip)
  • You change all or part of the property's use
  • You leave Canada
  • The owner dies

Calculating your capital gain or loss

To calculate any capital gain or loss, you need to know the following three amounts:

  • the proceeds of disposition;
  • the adjusted cost base (ACB); and
  • the outlays and expenses incurred to sell your property.

To calculate your capital gain or loss, subtract the total of your property's ACB, and any outlays and expenses incurred to sell your property, from the proceeds of disposition.

What happens if you have a capital loss?

If you have a capital loss in 2016, you can use it to reduce any capital gains you had in the year, to a balance of zero. If your capital losses are more than your capital gains, you may have a net capital loss for the year. Generally, you can apply your net capital losses to taxable capital gains of the three preceding years and to taxable capital gains of any future years.

Exemptions

  1. The principal residence
  2. Family farm
  3. Family fishing property
  4. Sale of qualifying Small Business Corporation shares

The scope of this article allows only to relate one of these examples:

The Principal Residence

A property qualifies as your principal residence for any year if it meets all of the following four conditions:

  • It is a housing unit, a leasehold interest in a housing unit, or a share of the capital stock of a co-operative housing corporation you acquire only to get the right to inhabit a housing unit owned by that corporation.
  • You own the property alone or jointly with another person.
  • You, your current or former spouse or common-law partner, or any of your children lived in it at some time during the year.
  • 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 (5,000 square meters), which converts to about 1.24 acres (54,000 square feet).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. As noted, from 2016 you must report the sale of your principal residence on Schedule 3 (Capital Gains) and subject to its meeting the test above it will remain non-taxable (for now!). If you continue to report the purchase and sale of “principal residences” during any one year, CRA may well conclude that you are “in the business of” buying and selling houses and thus, gains from this business will be taxable as income. Please let us know if you have any questions. You can follow and like us on Facebook as Mount Albert Tax Company or Holland Landing Tax Company, and you can connect with us on LinkedIn. Until next time,  Ian