Selling Your Home in Ontario: Understanding Capital Gains Tax
Selling a home can be an exciting but also stressful process, especially when it comes to understanding the tax implications involved. If you’re planning to sell your home in Ontario, it’s important to always contact a professional and have a basic understanding of how capital gains tax may or may not impact your financial situation. In this blog post, we’ll explore the basics of capital gains tax in Ontario and what you need to know as a homeowner.
So what are Capital Gains?
Capital gains refer to the profit earned from the sale of an asset, such as – your home. When you sell your home for more than you paid for it, the difference between the selling price and the purchase price is considered a capital gain.
Principal Residence Exemption (PRE)
One of the most significant tax benefits for homeowners in Ontario is the Principal Residence Exemption (PRE). Under this exemption, any capital gains realized from the sale of your primary residence are generally tax-free. This means that if you’ve lived in the property for over one year and you’re selling it as your primary residence, you will not have to pay capital gains tax on the profit.
Eligibility for the PRE
To qualify for the Principal Residence Exemption in Ontario, several criteria must be met:
1. The property must be designated as your principal residence for the years you owned it.
2. You must be a resident of Canada for tax purposes during the years you owned the property.
3. You must not have designated another property as your principal residence for the same years.
*Individuals are only allowed to claim the PRE for one property per year. If you own more than one property that you consider your principal residence, you’ll need to choose which property to designate as such for each tax year.
Partial Principal Residence Exemption
In some cases, you may be eligible for a partial principal residence exemption if only a portion of the property was used as your principal residence. For example, if you operated a home-based business or rented out a portion of your home, only the portion used as your principal residence would qualify for the exemption.
Reporting Capital Gains
Even though capital gains on your primary residence may be tax-free under the PRE, you’re still required to report the sale of your home on your tax return. You’ll need to provide details such as the sale price, the purchase price, and the dates of acquisition and sale. Reporting the sale of your home ensures that the Canada Revenue Agency (CRA) can verify your eligibility for the PRE. Take a look at the Government of Canada’s site for more detailed information: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-12700-capital-gains/principal-residence-other-real-estate.html#
Consultation with a Tax Professional
While the Principal Residence Exemption provides significant tax benefits for homeowners in Ontario, navigating the complexities of capital gains tax can be challenging. It’s highly recommended to consult with a qualified tax professional or accountant who can provide personalized advice based on your individual circumstances.
Selling or buying a home can feel like a lot of moving parts, without the proper guidance and information you can feel lost in a situation that doesn’t have to be overwhelming. If you have any questions, don’t hesitate to contact us.
