Capital Gains
Capital gain is the selling price less:
- The cost of the property plus any major renovations or additions and
- the outlays and expenses involved in the sale - real estate commission, legal fees, surveys etc.
The taxable capital gain is 50% of the capital gain and the taxable capital gain
is included with your other income to determine your taxable income and then
from that your tax payable.
There are several points that should be considered:
- Was the cottage inherited? This may have some bearing on the cost base.
Similarly, if the cottage was owned prior to 1994, it is possible a higher
cost base may have been elected.
- Is the cottage held jointly? Depending on circumstances, the capital gain
may be split between owners.
- Do you have deeded properties on the cottage parcel? If you sell both as
one parcel, it may be principal residence. If you sell the vacant parcel, you
may have capital gain.
- Have you changed the use of the cottage? If you have sold your principal
residence and made the cottage your retirement home (principal residence) you have changed the use of the property. Technically you
have a capital gain from the cost to the value of the cottage at the change
of use. This gain can be deferred by means of a letter to the Minister of
Revenue until such time as the new principal residence is sold. Similar
situations occur when the cottage has been used as a rental property.
- There are no replacement property provisions for the sale of one cottage
to purchase another cottage. If you sell your original cottage, you are
subject to the capital gain provisions. You can not roll the cost of the old
cottage into the new cottage.
- If you sell your cottage and personally take back a mortgage, it may be
possible to defer some of the capital gain over the life of the mortgage, or
five years - whichever is shorter.
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