Capital Gains, Capital Loss and Real Estate Investments – ROI/ROR
It is very important for you to know about Capital gains and Capital Loss if you are smart Real Estate Investors. Some Real Estate Investors we call here “RE-Investors” are concerned about reporting real estate transactions to the Canada Revenue Agency (CRA) and having to deal with the tax implications arising from these transactions.
As a Real Property Owner, when you sell your Real Property which is principal residence (the property where you regularly and normally live, file the tax on the address in other sense), there is no tax on any gain generated by a real value increase or selling proceed and making extra money on your money invested, provided it is also a matrimonial home as well if you are legally married if you think little further.
You may designate your choice of one property as principal residence per Family/Couple (Single or Husband and Wife). But it’s important to know you can have as many matrimonial homes designated for the same if you are married husband & wife for the different part/time period of the year, like winter home, cottage, summer home, and list go on…
As RE-Investors it is normal that you purchase an additional property other than you claim as primary real property to renovate and sell or else, with the intention of gaining a business profit and business rolling, you are also obligated to report to CRA just like other business around you, if any capital gains or losses generated from this those business transactions, and it’s no longer counted as part of your normal residence purpose property, in other sense its neither matrimonial or nor its primary residence to achieve the capital gain tax break. Btw. the Rental Income is also become part of the normal income, as it is also a part of the business or investments proceed.
It is a myth which pushes the Re-Investors to avoid reporting to CRA, or Taxation of real estate transactions and gains in fear or greed of paying high income taxes. I would strongly suggest to use the appropriate Tax Consultant as a regular part of your business plan and avoid the business get ruined, by the unlawful practice and tax implications. At Least as a business person you must have a team of your own as i recommend to maximum benefit your own investments grow over a time, we call it as ROI(Return on Investment) & ROR (Rate of Return)eventually.
Your Profit / Gain on a Real Estate transaction is calculated as:
Capital Gain / Loss = Proceeds of Sale minus Adjusted Cost Base – (minus) Capital Outlays and Expenses Incurred to Sell the Property
• Adjusted Cost Base = Purchase Price Paid + (Plus) Legal fees +(Plus) Legal Cost to Own +(Plus) Land Transfer Taxes(LTT) +(Plus) Expenses for Wages/Labour/Employees/Contractor cost and Materials spent to improve the property over a period of your Ownership.
• Capital Outlays & Expenses = Maintenance fees +(Plus) Property Taxes +(Plus) Mortgage Interest and other Interest paid to finance the Real Property +(plus) any Legal and Commission fees associated with Sale of the Property Investment during the period of your ownership.
> if you are a smart RE-Investors, Capital Gains are the most tax effective way of earning income because only 50% of capital gains are taxable as CRA Guidelines.
>so, If you generate a $50,000 capital gain on your Real Estate transaction, only $25,000 is added to your income and taxed at your marginal tax rate (Ask your Tax Consultant). & also, Percentage of tax depends on your annual income. Under federal tax laws, taxes have to be paid, but the laws also provide: credits, deductions, refunds, and other entitlements.
Disclaimer: This is Author’s Personal Opinion and User must use this information at own concern and advised to use their own Tax Advisors as all situations are different in different case scenarios. These opinions may not be suitable to all RE-Investors. E & O E, Terms & Conditions Apply.
Some Source of Info:
Calculating and reporting your capital gains and losses
This section provides information on calculating your capital gains and losses, and on completing schedule 3 and line 127 of your return.
- Do you have a gain or loss?
Events involving capital property that may lead to a capital gain or loss.
- When to report a gain or loss
Information on the rules for reporting and record-keeping.
- What happens if you have a capital gain?
You may be able to defer, offset or reduce all or part of the gain.
- What happens if you have a capital loss?
Can you reduce your gain, or apply a loss to previous or future years?
- How do you calculate your gain or loss?
The things you need to know to calculate your gain or loss, like the inclusion rate, adjusted cost base (ACB), and proceeds of disposition.
For Your Real Estate Investments or Mortgage Needs call Us:
Sales Representative- REALTOR®,
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