Principal Residence Series (Part 2) – Converting a Principal Residence into a Rental Property
When selling a property, it is generally known that capital gains tax needs to be calculated based on the property's use, and the corresponding tax must be paid. If the property is a principal residence, the Principal Residence Exemption (PRE) can be used to exempt some or all of the capital gains tax. However, many people are unaware of the provisions of Section 45(1) of the Income Tax Act, which states that when there is a change in the use of a property, it is deemed to be disposed of at fair market value. A change in use refers to converting a property used for personal purposes into one used for income-generating purposes, or vice versa. In simple terms, this means that if you previously owned a principal residence or a vacation home that you used solely for personal enjoyment (e.g., living or vacationing), and then decided to use that property to generate income, whether through long-term rental or running a Airbnb, the property is deemed to have been sold at its fair market value at the time of the change in use. The same rule applies if you convert a rental property into one for personal use. The Income Tax Act also provides two sister provisions, Sections 45(2) and 45(3), which allow taxpayers to make elections that, if used correctly, can effectively avoid capital gains tax.
Navigating Canada’s New Capital Gains Inclusion Rate: What You Need to Know
In a move to create a more equitable tax system, the Canadian government has introduced significant changes to the Capital Gains Inclusion Rate, effective June 25, 2024. This revision, announced in the 2024 budget, impacts how capital gains are taxed and alters the treatment of capital losses.
Understanding the Alternative Minimum Tax (AMT) in Canada
The tax system in Canada, like in many countries, can be complex. One aspect that often confuses taxpayers is the Alternative Minimum Tax (AMT). Don't worry; we're here to break it down in simple terms so you can grasp what it means and how it might affect you.
Bare Trust: What You Need to Know Under New Trust Reporting Rules
The Government of Canada has introduced new reporting requirements for trusts, as part of its international commitment to the transparency of beneficial ownership information. The new reporting requirements apply to bare trust, Canadian resident trusts that are currently subject to exceptions and non-resident trust.
Understanding the Enhanced CPP: Key Changes and Impacts in 2024
The Canada Pension Plan (CPP) is a monthly tax benefit designed to provide partial income replacement for retirees. The purpose of the CPP is to help Canadians maintain a certain standard of living after retirement. The income for the CPP comes from contributions made by employers and employees, as well as investment earnings. Both the contribution amounts and benefits of the CPP are adjusted according to the average wage and price levels in Canada.
What’s New in Taxes? Understanding 2024’s Key Tax Changes
The past year has been challenging for Canada in terms of macroeconomics, the business environment for small enterprises, and household financial arrangements. These challenges persist into 2024, and the new year continues to be filled with uncertainties. As usual, let's briefly summarize the tax changes for 2024 to help individuals and businesses make appropriate financial plans.
End-of-Year Tax Planning Guide for Families – 2023 Edition
December is a key period for tax planning, as some tasks must be completed by year-end to optimize refunds or minimize taxes due in 2023.
Realtor Cash-Back Incentive Could be Your Tax Free Money
A question that has been asked many times every year in the past few years is: Should I report the rebate given by the real estate agent for buying a house as income? Can a real estate agent claim the rebate as an expense? Sometimes the buyer receives a T4A from the real estate agent, so how do you handle this question? Here is the official CRA answer you want.
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