How is Capital gains tax calculated on Real Estate in Canada?

February 12, 2018 | Written by: Sohail Afzal

Tax Accounting Services Toronto

In Canada only 50% of the capital gains are taxable.

Capital gain is the difference between net sale proceeds and the purchase price of a property.

We can calculate net sale proceeds by deducting commission and other selling costs, while land transfer fee, legal fee, and other closing costs can be part of the original purchase price of the property evident on the purchase agreement you entered at the time of purchase.

Granted, if you are selling your home residence then you don’t have to pay capital gain tax on your gain but as per new amendments in tax law, you must report your sale. In this context, you would need to report the year of purchase and price paid for the house.

Deferring the Capital Gain on Real Estate in Canada

If you sold real estate property in Canada but the proceeds will be received in installments over a period of time, even then, you have to report this gain in your personal income tax return. But you can defer your capital gains up to five years using the capital gain reserve. This would only be beneficial if you expect your taxable income to fall in lower tax rate band in future, hence you will pay less tax on this gain.

Capital gain reserve allows the seller to defer his capital gain until he receives full payment. As long as you are Canadian resident you can claim capital gain reserve and defer your capital gain up to five years. You have to submit form T2017 in schedule 3 along with your personal tax return to claim this reserve.

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Sohail Afzal CPA Toronto

Sohail Afzal, CPA, CMA, MBA

Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.

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