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  • Principal Residence Exemption
    Posted

    Did you recently sell a property and make a gain on its sale? Are you wondering whether there is any tax to pay on this sale?

    If the property has been designated as your principal residence for the entire length of ownership, then there are no tax implications. To qualify as a principal residence, the property must have been owned by you or jointly with another person. Additionally, you, your spouse (current or former), or any of your children must have lived in the property for some period of time.

    You are only allowed to designate one property per year as your principal residence. Situations that tend to complicate tax matters occur when more than one property is owned during the same time period.

    When this occurs, you should designate the years of principal residence to the property with the highest capital gains on a per year basis. This will help minimize income taxes throughout your life, whereas designating all the years to the first property sold will simply minimize taxes in the first year of sale.

    What properties are eligible for the principal residence exemption?

    • House
    • Cottage
    • Condominium
    • Apartment (in an apartment building or duplex)
    • Trailer, Motor Home, or Houseboat

    How do I calculate my exemption?

    (1 + # of years designated / total # of years owned) x Capital Gain = Principal Residence Exemption

    Example:

    You own two properties:

    1. House – purchased in 2001 for $350,000
    2. Cottage – purchased in 2005 for $150,000

    In 2014, you sold your house for $500,000 and moved into your cottage (which had a market value of $200,000).

    House:

    • Initial purchase price: $350,000
    • Sale price: $500,000
    • Gain: $150,000 ($500,000 – $350,000)
    • # of years owned: 14
    • Gain per year: $10,714

    Cottage:

    • Initial purchase price: $150,000
    • Sale price: $200,000
    • Gain: $50,000 ($200,000 – $150,000)
    • # of years owned: 10
    • Gain per year: $5,000

    This example shows the accrued gains per year on the house is higher than the accrued gains on the cottage. Therefore, designating it as the principal residence for all those years is the most appropriate tax decision. This would result in the entire gain on the sale of the house begin exempt for tax purposes. Going forward, the cottage can claim the principal residence designation.

    If you are considering selling a property and have further questions, you should contact your accountant at once for helpful advice!

    Did you recently sell a property and make a gain on its sale? Are you wondering whether there is any tax to pay on this sale?

    If the property has been designated as your principal residence for the entire length of ownership, then there are no tax implications. To qualify as a principal residence, the property must have been owned by you or jointly with another person. Additionally, you, your spouse (current or former), or any of your children must have lived in the property for some period of time.

    You are only allowed to designate one property per year as your principal residence. Situations that tend to complicate tax matters occur when more than one property is owned during the same time period.

    When this occurs, you should designate the years of principal residence to the property with the highest capital gains on a per year basis. This will help minimize income taxes throughout your life, whereas designating all the years to the first property sold will simply minimize taxes in the first year of sale.

    What properties are eligible for the principal residence exemption?

    • House
    • Cottage
    • Condominium
    • Apartment (in an apartment building or duplex)
    • Trailer, Motor Home, or Houseboat

    How do I calculate my exemption?

    (1 + # of years designated / total # of years owned) x Capital Gain = Principal Residence Exemption

    Example:

    You own two properties:

    1. House – purchased in 2001 for $350,000
    2. Cottage – purchased in 2005 for $150,000

    In 2014, you sold your house for $500,000 and moved into your cottage (which had a market value of $200,000).

    House:

    • Initial purchase price: $350,000
    • Sale price: $500,000
    • Gain: $150,000 ($500,000 – $350,000)
    • # of years owned: 14
    • Gain per year: $10,714

    Cottage:

    • Initial purchase price: $150,000
    • Sale price: $200,000
    • Gain: $50,000 ($200,000 – $150,000)
    • # of years owned: 10
    • Gain per year: $5,000

    This example shows the accrued gains per year on the house is higher than the accrued gains on the cottage. Therefore, designating it as the principal residence for all those years is the most appropriate tax decision. This would result in the entire gain on the sale of the house begin exempt for tax purposes. Going forward, the cottage can claim the principal residence designation.

    If you are considering selling a property and have further questions, you should contact your accountant at once for helpful advice!

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  • So you won the jackpot…
    Posted

    Get to know the potential tax implications you are facing.

    The Canadian and Ontario lotteries are ever­-increasing, creating more temptation to buy into the pool and win it big. But what tax implications would you face if you became the lucky winner?

    In Canada, lottery winnings are not taxable and are not required to be included as part of your annual income. However, additional income earned on the winnings (such as interest on investments) is considered taxable and must be reported to the CRA.

    If you wish to share your fortune with friends and family members, they will not be taxed on the winnings since this is considered to be a gift and is not required to be reported as income. However, if additional income (such as interest) is earned on the gift, the same rule applies, and any additional income earned is considered taxable.

    Gifting to friends or family members do not have income tax implications either. For example, a father can gift $10,000 to his son for the purchase of a new vehicle. This gift is non­-taxable income for the son and, likewise, is not tax deductible to the father. The only situation where tax comes into play with gifting is when the gift is capital property (real estate or investments), at which point the property is deemed to be disposed of at its fair market value.

    If you have any questions regarding the tax implications on your lottery winnings or general gifting rules, please contact your accountant for assistance.

    Get to know the potential tax implications you are facing.

    The Canadian and Ontario lotteries are ever­-increasing, creating more temptation to buy into the pool and win it big. But what tax implications would you face if you became the lucky winner?

    In Canada, lottery winnings are not taxable and are not required to be included as part of your annual income. However, additional income earned on the winnings (such as interest on investments) is considered taxable and must be reported to the CRA.

    If you wish to share your fortune with friends and family members, they will not be taxed on the winnings since this is considered to be a gift and is not required to be reported as income. However, if additional income (such as interest) is earned on the gift, the same rule applies, and any additional income earned is considered taxable.

    Gifting to friends or family members do not have income tax implications either. For example, a father can gift $10,000 to his son for the purchase of a new vehicle. This gift is non­-taxable income for the son and, likewise, is not tax deductible to the father. The only situation where tax comes into play with gifting is when the gift is capital property (real estate or investments), at which point the property is deemed to be disposed of at its fair market value.

    If you have any questions regarding the tax implications on your lottery winnings or general gifting rules, please contact your accountant for assistance.

    Read More