The tax tips presented, and the rates provided, are only applicable to the dates the tax tips are presented and updated and they may change at any time. Please use the tips for general information only and obtain professional advice and updates from Storoszko & Associates at 647 367-3477 or your professional tax advisor.
Tax Tips - Personal Tax Returns: Capital Gains
Since 1994 all sales of capital assets are subject to tax on capital gains. The difference between the purchase price and the selling price less expenses are included on your tax return as capital gains. Until February 27, 2000, the taxable capital gain was 75% of the capital gain. Between February 27, 2000, and October 18, 2000, the taxable capital gain was 66.66% of the capital gain. After October 18, 2000, the taxable capital gain is 50% of the capital gain. The taxable capital gain is included on your tax return and taxed at your marginal tax rate.
CAPITAL GAINS TAXATION
Capital gains are the difference between the selling price of any capital property less costs of the sale, the original purchase price and any additional capital costs of owning the property. Capital property can include; rental property, commercial real property, shares, certain bonds, tangible property (precious metals, vehicles, etc.). Since October 18, 2000 an inclusion rate of 50% of the capital gains calculated in the previously defined manner are included in your income tax return for the purposes of calculating tax. If you have a capital loss (negative capital gain) the capital loss many be carried back for three years against capital gains previously calculated, or carried forward indefinitely.
ROLLOVER OF CAPITAL GAINS
If you sell real property comprised of commercial real estate used in a business or in farming you may take advantage of a roll over provision for replacement property. If you buy a replacement property with a similar use to the real property you have sold you can defer the capital gains and amortization taken on the original property proportionately to the value of the new property purchased. For example if you own a factory in one city and wish to move to another city, you can defer the gain on the sale of the first factory against the cost of the second factory. These provisions apply in every case where the properties are used.
CAPITAL GAINS TAX PLANNING
Taxable Capital gains (of 50% of the capital gain on assets you have owned for a lengthy period taxed at your marginal tax rates can create large tax bills. There are several ways to reduce your taxes in the year you realise capital gains. You can realise losses on assets worth less than when you bought them to reduce the gain. You can use RRSP contributions to your contribution limit in the year of sale. During the years you own real estate you can plan the deduction of capital cost allowance. You can time your sales if you own more than one asset to spread the gains over more than one year. It is important to see your tax professional for advise when thinking of selling assets subject to capital gains.