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.
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.
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.
Ontario New Enhanced HST Rebate-A Boon for Rental Property Builders
In September 2023, the Canadian Prime Minister made an important announcement regarding the GST rebate for new construction. Now, if you're building properties with four units or more, you can get a full refund of the GST paid, which used to be a partial rebate. This modification will significantly lower expenses for builders. In this article, we will explain the details and benefits of the new HST rebate policy, and how it can help you save money and increase your profitability in the real estate market.
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.
New federal Anti-Flipping Rule in Canada aims to address real estate speculation
On December 15, 2022, Bill C-32 received Royal Assent and became law. Bill C-32, which will take effect on January 1, 2023, includes a new federal Anti-Flipping Rule. The new Anti-Flipping Rule aims to address speculation in real estate transactions. Under the rule, if a property is sold for a profit after being held for less than 365 days, the profit will be treated as Business Income rather than Capital Gain. Business Income is subject to a higher tax rate than Capital Gain, with 100% of the Business Income being included in the current year's taxable income compared to only 50% of the Capital Gain. Additionally, the principal residence exemption will not apply to the sale of a property held for less than 365 days, meaning that even if the property was used as a primary residence before the sale, the appreciation would be treated as Business Income.
Tax Changes and New Rules to Be Aware of in 2023
As we start the new year of 2023, we say goodbye to the epidemic for good but begin a new year full of uncertainty accompanied by high-interest rates and high inflation. To help individuals and businesses plan their finances, it is helpful to review any changes in taxation for the coming year. It is recommended to seek the advice of an accountant or reliable sources for the most current and accurate information.
- 1
- 2