The federal government’s new bill, announced last April, told us there will be a tax change for those who do flips (quick purchases and resales). How to calculate the tax payable on a property sold?
1- Main residence
If it is a main residence, the capital gains are legally tax-free. So if you make a capital gain on resale of your primary residence, you will not pay tax on that amount, regardless of the size of the gain. Please note: from January 1, 2023, even if it is your primary residence, you will have to pay taxes (business income and not capital gains) if you resell your property in less than a year. However, there are certain exceptions.
2- Second or income property
If the sale generates a capital gain, the Quebec tax rate is 50%. Just like your home, you must have held it for more than 1 year for capital gains or you will be paying for business income. When calculating an investment property that you live in as your main residence, i.e. as the owner who lives in your own home, the tax is only calculated on the portion that you do not use for your main residence. In other words, if you occupy 50% of a two-family house (half of the area is used for your residence), the calculated tax is 50% of the capital gain of the part that is not your main residence, i.e. 50% of the amount declared as capital gain of the building (half of the duplex) is taxed at 50%.
3- Donations
Would you like to give one of your children a piece of land or property during their lifetime? This donation is legally considered a sale. Therefore, even if you give it away as a gift, you have to pay tax on the value of the property. It is therefore better to have this option checked to find out what amount might be due in order to make an informed decision.
4- Short term rental properties
In this type of real estate, e.g. B. a rental house with short-term rental, GST and QST apply to the rental. When selling this type of property, in addition to the 50% of the capital gain, the buyer must also remember to pay the GST and the QST on the purchase.
Advice :
1- Have a tax professional assess the impact of selling a property on your financial situation before putting it up for sale.
2- If you have used part of your principal residence as your principal place of business for your work, a capital gains tax may be payable on the part used to generate income.
3- If your main residence has not always been there, find out the proportion of taxes to be paid on capital gains in those years, as well as in the event that you carried out commercial or rental activities there.