Capital Gains Tax – 3 Facts You Should Know

Capital Gains Tax – 3 Facts You Should Know

In the heat of the housing market, the media drew a lot of attention towards real estate “flipping” in BC. Buyers and sellers were purchasing properties and reselling for a profit, not before long the government implemented policies that required a lot more disclosure throughout the buying and selling transaction as well as distinguishing an individual’s primary residence. The government wanted to make it easier to track properties turned rentals, recreational homes or even a little of both. As a result, they hired an undisclosed number of works at the CRA (Canada Revenue Agency) to investigate these “tax cheats”. Below we’ve disclosed the top 3 facts you should know about Capital Gains Tax, #3 could save you thousands!

 

 1. What is it?

Capital gains tax is based on an increase in value of real estate or an investment. It applies to real estate that is not considered your primary residence and to stocks held in a non-registered investment account. This “gain” may be short term or long term and is not realized until the asset is “sold”. Capital gains tax is applied when the investment or real estate is worth more at the selling point than it was at the time of purchase.

*Capital Gains Tax must be claimed on income taxes and paid during the income tax year you’re filing

2. How is it calculated?

The total net gain is divided by 2 (50%) and then added to your income. It can also be split between spouses if the asset it jointly held. The gain is calculated at the time it’s sold and is added onto the asset owner(s) total income for that year.

Example:

John and Jane bought a rental condo in 2011 for $200,000 in Abbotsford, BC. In 2017 they decided to cash in on their gains and were able to resell their rental property for $400,000.

Sale price 2017: $400,000

Deduct the following:

  • Original purchase price: $200,000
  • Legal and realtor fees (from original purchase AND resale): $20,000
  • Property transfer tax (only if it was not deducted on 2011 income tax)

Total deductions: $220,000

Profit: $180,000

Capital gain: $180,000/2 (50% capital gain) = $90,000

*Since the property was purchased equally between John and Jane, the total capital gain will be split between the both parties.

John’s income in 2017: $90,000 + $45,000 = total income in 2017: $135,000

Jane’s income in 2017: $90,000 + $45,000 = total income in 2017: $135,000

Per asset owner: $45,000 x 36.5% (new tax bracket) = $16,425

Taxes owing for each asset owner = $16,425

3. How can you avoid it?

Putting money into a Registered Retirement Savings Plan (RRSP) can help you avoid paying this hefty tax.

Using the example above: Assuming they have the contribution room to do this, if John and Jane invest $45,000 into their own individual RRSP account, they would avoid paying the entire tax hit while still having it available at their disposal and best of all…tax free.

This is an excellent way to jump start your retirement savings all while getting out of having to the pay the government a hefty chunk of change.

How to Open an RRSP Account

Nathan Estabrooks of By Referral Mortgage Consultants, is a fully licensed investment advisor through IIROC, Peak Securities. Nathan is a true expert in the field of investments and would be more than happy to walk you through the steps required for you to open your own RRSP account.

Speak with Nathan about the details of an RRSP account and what your investment objectives should be for both you and your family.

Home Owner Grant – Online Application

With the first official day of summer just one week away, like most of us, we’re all waiting in anticipation to rid ourselves of responsibility and enjoy those longer evenings and sunny days. If you have kids you might find yourself scrambling to register them for camp or anything under the sun to keep them occupied over the summer holidays. However, before we all get into vacation mode, there is one more “adulting” duty to be attended to, your Home Owners Grant.

To make your life a little easier we’ve gone ahead and included each city’s online Home Owners Grant application form below. To avoid 5% late payment penalty on the HOG portion of your taxes, ensure you have your HOG submitted prior to July 2nd 2018. Please note, you will need your tax notice to complete the online form.

Abbotsford

Burnaby

Chilliwack

Coquitlam

Delta

Hope

Langley

Maple Ridge

Mission

New Westminster

North Vancouver

Pitt Meadows

Port Coqtuilam

Port Moody

Richmond

Surrey

Township of Langley

Vancouver

West Vancouver

White Rock

 

Basic Grant:

If your property has an assessed value of $1,650,000 or less, you may be eligible to claim the full grant amount of $570.

 

If your property’s assessment value is $1,650,000 or greater, you may qualify for a reduced grant amount. The grant is reduced by $5 for every $1,000 above the assessed value and completely eliminated at an assessed value above $1,764,000.

 

Additional Grant:

If you are 65 years of age or older, you may be eligible for an additional grant of $275. The Additional Home Owners Grant is completely eliminated if your property has an assessed value above $1,819,000.

BC Speculation Tax Update

Good Morning Salutation,

On Monday, the BC government announced changes to the Speculation Tax which was proposed earlier this year.

“The speculation tax is intended to improve housing affordability in areas where the need is most acute, while exempting rural cabins and vacation homes”, Finance Minister Carol James said. These statements come after heavy criticism from many BC Homeowners and according to James, the changes will exempt 99% of British Columbians from the tax.

  • Areas the Speculation Tax will Apply
    • Metro Vancouver
    • The Capital Regional District (excluding the Gulf Islands and Juan de Fuca)
    • Kelowna and West Kelowna
    • Nanaimo-Lantzville
    • Abbotsford, Chilliwack and Mission
  • Tax Rates 2018
    • 0.5% of the property value for all properties subject to the tax
  • Tax Rates 2019 and subsequent years
    • 2% for foreign investors and satellite families
    • 1% for Canadian citizens and permanent residents who do not live in British Columbia
    • 0.5% for British Columbians who are Canadian residents or permanent residents (and not members of a satellite family)
  • Exemptions
    • People who rent out their second property for at least six months of the year
    • B.C. residents with second properties are eligible for tax credits valued up to $400,000

I BELIEVE THIS POLICTICAL CARTOON SUMS UP OWNERSHIP OF RECREATIONAL PROPERTIES FOR BC RESIDENCE.


As always, I am here to help. Should you have any questions please do not hesitate to contact me.

By Referral Mortgage Consultants*

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Dave 604 897 2741 Jordi 604 615 1312
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BRMC Vs. The Banks. Bigger Bang For Your Buck.

Here is another reason to use BRMC as your Abbotsford, Chilliwack and Mission mortgage brokers this year. If you are putting 20% down payment or more toward the purchase of your next home, working with an award winning BRMC broker will allow you the same purchase power as you could find last year before the new rule changes introduced Jan 1st 2018. That is 21%+ more home with us!

Here is an example of how we differentiate ourselves besides lower rates:

BUYING POWER – 21%+ Greater with BRMC

We can also help you purchase or refinance your home without the need of the financial stress if you are putting 20% down or more where as the majority of lenders have to qualify using the financial stress test which effectively reduces your purchase power by approximately 20% as indicated by the above example. The difference in not only a reduction purchase power but the style of home you are looking for ie townhome or home. In our current market renting a home is the same amount and if not more in some cases as owning your own home. . So ask yourself this question, why not use BRMC?

By Referral Mortgage Consultants*

“Click, Call, Chat – Award Winning Brokers”

Dave 604 897 2741 Jordi 604 615 1312

BRMC Google review Chilliwack Office

BRMC Google review Abbotsford Office

BRMC Google review Mission Office

www.AbbotsfordsMortgageBroker.com

www.ChilliwackMortgageBroker.com

BRMC Facebook

www.linkedin.com

www.twitter.com/brmcmortgages

www.youtube.com/user/BRMCmortgages