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If it used to be your principal residence, this exemption could save you a huge tax bill
Q: I own a house in Quebec, which is rented and I rent a townhouse in B.C. (I’ve been away since Oct. 2013—I’m an imported grandmother). The house is up for sale. Will I have to pay capital gains tax when I sell the house? Is there a way around it? I will make about $25,000 in gains as the market is poor in my neighbourhood in Quebec. I’ve owned the house since 2006. Any advice is appreciated.
—Wendy T.
A: Hi, Wendy. Sounds like the draw of family pulled you out west but I’m sure the great west coast weather helped keep you in British Columbia, which is why you’re selling your Quebec house. The good news is you will be required to pay capital gains tax on the sale of this home. Why is this good news? Because it means you made money on the sale and purchase of this asset.
Based on what you’ve told me, you estimate about a $25,000 gain between the purchase price and the sale price. If we ignore all other factors, this means you’ll pay your marginal tax rate on $12,500. If you earn less than $38,000 per year, this translates into an extra $1,255 in income tax during the year you sold the home.
But things aren’t equal. The Canada Revenue Agency offers a tax exemption on the sale proceeds of each family’s primary residence. In simple terms, this is calculated based on the number of years the home was your primary residence, plus one year. In your case, you can exempt eight years of the total 11 years you owned the home (seven years of living in the home, plus one makes eight years that qualifies for the exemption.) That reduces the income tax owed from $1,255 to just under $350.
Better still, if the home is mortgage-free you get to pocket the entire proceeds of the sale, minus $350 and any transactional costs. You could use this money as part of your retirement fund, to put a down payment on another home in B.C., or simply as fun money. All in all, not bad situation to be in.
Of course, it’s always a good idea to pay a professional to get precise, personalized advice before tackling any tax saving strategy. All the best and have fun on the west coast.
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Romana King is an award-winning personal finance writer, a real estate expert and speaker. She is the current Director of Content at Zolo.ca
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If someone’s income is tax free then how capital gain tax will be calculated
I own 2 rental properties, I borrowed from the assets of one 5 years ago to fix one of them and sold it this spring. Can I put the capital gain back into the original property now and finish fixing it up. If not do I have to reinvest into another property by December 31st.
Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.