How to calculate the tax payable on the sale of rental property

Many investors do not know how to calculate capital gain tax on property sales. Others make the mistake of estimating taxes based on cash flow.
In today's video, I’ll show you how to calculate capital gain tax with examples, so you can avoid paying unnecessary taxes on property sales.
If you have any questions or thoughts after watching this video, leave a comment below, and I’ll respond as soon as possible.
#RealEstateTaxTips​ #RealEstateInvestors​​ #CanadianInvesting​ #realestateinvesting #capitagaintax #recapturetax #taxman #rentalpropertysales
Don’t forget to subscribe to my channel for more videos on Canadian real estate and tax-saving strategies, so you don’t miss a thing!
SUBSCRIBE TO OUR MAILING LIST AND CHECK OUT OUR BLOG: realestatetaxt...
So you’ll receive weekly tax tips and free real estate investment resources.
Want to PAY LESS TAX as a real estate investor? Get this FREE guide: www.therealest...
FOLLOW ME ON SOCIAL MEDIA:
Facebook: / realestatetaxtips
Instagram: / realestatetaxtips
DISCLAIMER:
Tax planning is a personalized decision and will depend on your situation, priorities, and risk tolerance. Consult with your own legal and tax advisors to ensure you get the advice you personalized for you.
The information contained in this video is for general information purposes only.
The information is provided by ECRB Consulting Inc., RealEstateTaxTips.ca, Cherry Chan Professional Corporation and Cherry Chan.
While we endeavour to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability to the article or the information, products, services, or related graphics contained on the presentation for any purpose. Any reliance you place on such information is therefore strictly at your own risk.
In no event will we be liable for any loss or damage, including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of or connected with the use of this information.

[@syediqbal2220]

I am selling my rental property soon. Can I get your help in getting calculation and planning in advance.

[@johannndsouza]

Ok what if (same example) I live in the property for the first 3 years then the next 3 years i move in with a friend and rent it out for the next 3 years then sell on year 3. (I am also in burlington/oakville)

[@TomL2025]

I have a rental for many years, I lost track, Where can I find my recapture tax? Can I find it in my account with CRA?, I

[@TomL2025]

Hi Cherry, is the value of the land can not be claimed CCA?

[@billchong2089]

Excellent presentation. You make it easy and simple to understand. Thanks.

[@RealEstateTaxTips]

Thank you.

[@pabawathieperera9118]

I refinanced once during the 15 years and received only 18,000 . It was at the very beginning of purchasing. Does it make a difference for the sale?

[@RealEstateTaxTips]

Yes cash flow and taxes are two different scenarios. Likely will receive less (for what you have already got in the past from refinancing)

[@chathudn]

Hi Cherry, When a basement of the primary residence is rented out, does capital gains tax still apply?

[@RealEstateTaxTips]

That would depend on total space of the basement vs the total house. I would recommend you schedule an appointment with my team to review your scenario.

[@jayselvaratnam]

If we had rented out a property then moved in after X number of years to make it primary residence can we avoid this capital gains tax?

[@RealEstateTaxTips]

Primary residence exemption is an annual designation. To qualify to claim primary residence exemption on a property that you've lived in (so you don't have to pay tax), you will have to ordinarily inhabit in the property during that particular year. In another words, if you live in that property for 3 years, but rent it out for 5 years previously, you will only be able to designate three years of capital gain as tax free and you have to pay taxes on the 5 years that you rented it out. There're election available to shelter more taxes if certain conditions met. Typically you will still have to pay tax.

[@BH-tr9xm]

@@RealEstateTaxTips Same question at Jay, but what happens if you live in the property (upstairs) and rent out the basement for say 10 years? How is the capital gains calculated from a primary yet rental home?

[@RealEstateTaxTips]

​@@BH-tr9xm PR exemption is a very complicated subject. It goes back to how big your home was, did you do any structural change to accommodate the rental purpose, etc.

[@RealEstateTaxTips]

@@BH-tr9xm Best case scenario you can shelter the entire capital gain under primary residence exemption. Worst case scenario is that you would have to pay taxes on the the portion of capital gain that belongs to the rental space

[@bakraammerzoian]

Thank you for the detailed information. I would like to ask a question regarding a rental property. I own a rental property Co-ownership with my wife, 75% my share. I have the property about 7 years now, but it became my principal property since the last 2 years. Would I be exempt from capital gain tax since it my principal residence now? And how do I calculate the capital gain on my share VS my wife's?

[@lamlamc]

Thank you for all the amazing videos Cherry! I would like to ask how much dividend needs to be taken out for reducing the 50% capital gain tax down to 20%? This is regarding the sales of a property owned by a corporation. Would it be 50% of the net profit to be distributed as dividends in the same year?

[@RealEstateTaxTips]

The calculation gets a bit more complicated. Firstly, you need to have e refundable dividend tax on hand for you to qualify for the refund. The amount is roughly the refundable dividend tax on hand x 3. Now, this is a high level analysis and I would encourage you to speak to a professional.

[@bibekshrestha527]

Great education! Thank you! Quick questions (1) for the coownership (husband and wife), do we need to file Capital Gain (or Losses) and ABIL for both of us or only one person can include it? (2) if one converted a rental condo to FURNISHED condo with significant expenses, can one include the expense in the ACB/outlays and expenses?

[@jeetbaath1900]

👍🏻👍🏻

[@boriskofman7852]

Very clear and informative. Thank you very much!

[@BH-tr9xm]

Thank you Cherry, great content as always! My question is what if you have a few rental properties, and then declare non-residency? How is the capital gains calculated for a non-resident Canadian if I sell my investment property? Thanks.

[@RealEstateTaxTips]

Hi Bushra, it sounds like you have a very specific situation. It's much easier to have a sit down conversation with someone that knows your situation to advise you accordingly. Feel free to reach out to our office if you don't already have someone working with you.

[@ayshatayyaba8456]

Very informative What if sold your only property that was on rent and you bought another one do you still need to pay tax?? Buying price is little higher than selling price??

[@adrianfyfe433]

Thanks. Useful what happens if you make a loss on the sale of a rental property? Does this just zero out? Thanks

[@shansiva9256]

Very valuable information. Appreciated your effort to inform in details

[@RealEstateTaxTips]

Glad it was helpful!

[@honeybunchofoats0694]

Thank you Cherry, How are we supposed to track capitalized improvements in case of audit? Say I own a building for 15 years and perform capital improvements every year.

[@RealEstateTaxTips]

You track your expenses every year, keep the receipts for all those years, until 7 years after you sell your property

[@samanthawilson5446]

Question about capital gain tax exemption. I know that if you file section 45(2) and don't have another primary residence, you can exempt yourself from paying capital gain tax for up to 4 years on a rental that was once your primary residence. However, what if you did not file section 45(2) (rookie mistake)... have sold your house... can you back date filing this letter, or have you missed your chance and need to claim capital gains?

[@RealEstateTaxTips]

Late filing of 45(2) can be submitted, but a penalty is imposed by CRA.

[@sandychang9086]

Hi Cherry, thanks for the informative videos. I just found your channel and subscribed it. I have a question for you on changing a rental property to my principal residence. When my tenant moved out, I spent money to renovate the apartment then moved in. If I would like to sell this apartment in a couple of years. Can I add the reno costs to the adjusted cost base to offset the sale proceeds? Thank you.

[@RealEstateTaxTips]

Assuming your renovation is considered capital improvement, you can add the amount you spent to your adjusted cost base.

[@thanhle-pt5qy]

It's a very important article for me..thanks a lot....but I didn't hear you mention about property tax....can I deduct p tax from my capital gain ?

[@RealEstateTaxTips]

Thanh, property tax is typically a current expense and not included as part of the capital gain tax calculation, unless it is property tax incurred during the period that you are getting the house ready for rent.

[@natashakent6046]

Thank you so much that was so helpful I just would like to clarify something. I’ve owned a property for four years sold it this year and for one out of those four years it was my primary residence. Do I figure out my sale price and adjusted basis then take 3/4 from those numbers on my tax paperwork to calculate my capital gains?

[@RealEstateTaxTips]

You'll need to use form T2091 on your personal tax return.

[@kwejojoe1111]

Thanks for your video. I just watched it and wondering if the 50% capital gain will be added to the person's income and taxed at their marginal tax bracket as a whole or will the 50% capital gain be taxed separately at their marginal tax bracket?

[@RealEstateTaxTips]

The taxable portion of the Capital Gain is added to all of your income and would be taxed at the marginal rate(s) that apply.

[@simonewagner4761]

Great video and explanation - but how to actually report this in the tax forms, namely schedule 3 and T776 ?

[@RealEstateTaxTips]

I would recommend you schedule a meeting with one of our tax professionals to assist you with your questions

[@ursbruhin3044]

Hello Cherry, Can I change from sole proprietor ship to a company at anytime and what would be the cost and implications? I am planning to sell my rental property once the new rental property is complete. Any way to reduce capital gain? thank you, Urs

[@RealEstateTaxTips]

Cost to transfer - kzbin.info/www/bejne/pqDEZKJ3oN5snLM We have a report specifically related to how to reduce capital gain tax - www.therealestateaccountants.ca/capital-yt

[@litlam3252]

Hi Cherry: Thanks for your video! Very clear and informative. Just want to know can we add Tarion Warranty Fee, Agent Fee, Levy (development fee) etc to max the Adjusted Cost Base?

[@RealEstateTaxTips]

Hi Lit, thanks for being here. Unfortunately this isn't the right platform where I would be able to advise you about your personalized situation. For any questions or consultation, please contact our office at 416-548-4228 or email us at [e-mail] and we will be sure to take care of you. Thanks!

[@eliedarwich7901]

You talk about everything but what about the down payment that was used to purchase the property? When it comes in the calculation?

[@RealEstateTaxTips]

Hi Elie, the calculation of capital gain tax is based on the purchase price, not based on your own cash flow. The downpayment forms part of the purchase price of your property - it is irrelevant for the purpose of calculating capital gain tax - other than if you used borrowed fund as downpayment - in which case, you get to deduct the interest expense related to the borrowed fund.

[@cindyzhang923]

Hi Cherry, thank you for your great video! Just wondering is this calculation also work for foreign owner in BC?

[@RealEstateTaxTips]

The deductions still apply, the 50% capital gain still apply, the only difference is the applicable tax rates in your particular situation. Also, the cost of foreign tax credit would be added to the cost of building as a deduction. Hope it helps.

[@marshawaithe2684]

Great video, Cherry. How long do I have to live in a property to avoid capital gains upon sale? Is there a minimum amount of time required? In my situation it isn't a rental property.

[@RealEstateTaxTips]

Marsha, primary residence exemption is an annual designation and you can only designate one property per year as your primary residence. This means that you need to ordinarily inhabit in the year that you designate that property as your primary residence in the year that you try to shelter the capital gain. Ordinarily inhabit the property means you live in it, evidence based. If you rent out a property for a period of time during the duration of ownership, that portion of rental period won't qualify for capital gain exemption as primary residence...unfortunately. (Certain exception apply.)

[@justinlam2687]

Hi cherry! Great video! How do you calculate the capital gain of a primary residence of 4 years but was converted to a rental for 5 months prior to selling it?

[@RealEstateTaxTips]

You may be able to shelter the entire gain with the way primary residence formula is designed. Make sure you consult with a proper accountant to file the relevant form

[@raxapatel757]

Great work 👏 👍 👌

[@RealEstateTaxTips]

Thanks a lot 😊

[@zhenguangliu6296]

Perfect video presentation. You made it clear and easy to understand, very helpful. Thank you.

[@RealEstateTaxTips]

You're very welcome!

[@boriskofman7852]

Cherry, What happens if a building depreciates at the time of sale. For example, adjusting cost base $250,000, 20,000 was taken as CCA and at the time of sale building itself was valued at $230,000. Am I correct that in this case, it should be no recapture? Thanks

[@RealEstateTaxTips]

If it was sold for $230K then year, there's no recapture

[@boriskofman7852]

Thank you very much,Cherry for clarification!

[@TahirGilani]

fantastic and comprehensive explanation!!!! wonderful job

[@RealEstateTaxTips]

Glad you liked it!

[@songsongcanada]

Hi Cherry, can you do a video for Airbnb operators? Thanks!!

[@RealEstateTaxTips]

Sure will add that in the list of future ideas.

[@songsongcanada]

@@RealEstateTaxTipsthank you! Your videos deserve more views and likes. They are amazing!

[@lensfromtravel]

Extremely informative video - just a question - where do we capture GST/HST rebate on new properties?

[@RealEstateTaxTips]

If you are referring to GST/HST rebate received from government, you would have used it to offset against your purchase price.

[@lensfromtravel]

@@RealEstateTaxTips thank you so much :)

[@Qa9cLj0t6]

Thank you so much! I feel so educated now!

[@RealEstateTaxTips]

Glad you found it helpful!

[@Jeff-if4id]

Great explanation of a complex subject!

[@RealEstateTaxTips]

Thank you!

[@annaperry1471]

Magically ‼this 🙏🏼🖤

[@RealEstateTaxTips]

Glad you like it.

[@darshanmahida7181]

Wonderful video

[@RealEstateTaxTips]

Thank you! Cheers!