Buying, selling or renting a property has significant tax consequences. Here is a brief overview of what you need to know when filing your income tax return.
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Buying a property
“[L’achat d’une propriété] has no tax consequences unless it is our first home,” H&R Block spokesperson Yannick Lemay said in an interview with QMI Agency.
If this is your first home, you may be eligible for the federal Home Purchase Tax Credit (CIAPH) and the provincial Home Purchase Tax Credit.
Mr. Lemay also recalls the existence of the Home Buyers' Plan (RAP), which makes buying a first home easier by withdrawing money from your RRSP.
“There are no restrictions on how the funds can be used, so you can use them to purchase both a curtain and a deposit.”
Also in operation since April 1, 2023, the Tax-Free Savings Account for the Purchase of a First Home (CELIAPP) set up by the federal government is a type of real estate TFSA that makes it possible to “support the purchase of a first home through a contribution.” up to $40,000, tax-deferred.
Rent out your property
If you have decided to rent out your property during the tax year, there are certain changes to be aware of.
“[À ce moment-là]“There is a so-called change of use, i.e. the conversion of a main residence into a property that is used to generate income,” explained the expert.
“It will then be assumed that we have sold the property to ourselves. It has the same consequence as selling a house, meaning we sold it to ourselves at fair market value.”
Therefore, the resulting capital gain must be reported in the year of the change in use.
However, it is possible to exercise the election provided for in paragraph 45(2) of the Income Tax Act, which allows you to designate the property as your principal residence for a maximum of four years, provided you do not claim depreciation and you reside in Canada, even if rented and you don't live there.
Sell your residence
When you sell your property, you will typically need to report any capital gain or loss made on the sale. Generally, half of a capital gain is taxable, but the capital loss realized on the sale is not deductible.
However, designating a property as your primary residence allows you to avoid paying taxes on some or all of your taxable capital gain. To claim this exemption, the property must have been your primary residence for the entire time you owned it.
“If we have owned our house for 20 years and have not sold any other houses or owned any other houses in those 20 years, the problem does not arise. “We can be exempted from the entire property,” the spokesman said.
However, if part of our property is taxable or the sale is a second home, certain expenses can be deducted when calculating the capital gain, such as sales costs or notary fees.