Tax Season is Almost Over:
Have you reported your capital gains?
With income tax season swiftly approaching its end, many Canadians are gathering their last minute T4s, receipts and expense forms, capital gain information, and any other important documentation before filing! During this time, the Canada Revenue Agency’s (CRA) website is your best asset in keeping informed on changing tax policies and in determining what is classified as your taxable income for the year. Many people assume that their taxable income solely includes their T4s and self-employed income, tuition fees, investments, and benefits, but what they may not realise is that selling property (foreign or domestic) and owning rental/business properties are considered an investment with capital gains. Income that must be declared on your income tax.
In the past year, the CRA has made several changes to its 2018 tax return process, including – but not limited to – education and textbook credits, children’s credits, and public transit tax credits. Some people may be unaware that these changes extend to properties sold in 2017 as well. According to the CRA, “[i]f you sold property in 2017 that was, at any time, your principal residence, you must report the sale on Schedule 3, Capital Gains (or Losses) in 2017 and Form T2091 (IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust).” They do note that you may be exempt from paying tax on the capital gain so long as it is on the sale of your principal residence. However, if your home was not your principal residence for the duration of your ownership, “you have to report the part of the capital gain on the property that relates to the years for which you did not designate the property as your principal residence.”
Similarly, if your property is solely used to produce additional income or qualifies as both your principal residence and produces additional income (for example, as a rental), you must report it to the CRA when filing. For properties that are considered both a principal residence and a rental/business, “you have to split the selling price and the adjusted cost base between the part you used for your principal residence and the part you used for other purposes.” Conversely, you may need to report a capital gain if you change your primary residence into a rental property; “[e]very time you change the use of a property, you are considered to have sold the property at its fair market value and to have immediately reacquired the property for the same amount.”
Some people may also own foreign property and are obligated to report the property when filing their income tax. As a Canadian resident who owns a foreign property with a fair market value of more than $100,000, you are required to file Form T1135, Foreign Income Verification Statement. The purpose of this form is to “help combat international tax evasion and aggressive tax avoidance… (and) ensure that everyone pays their fair share.”
While this might all sound daunting and confusing, it is very important to keep informed on changes in tax processes so that you are aware of the types of income you must report when it comes to tax season. If you are a first time home seller, it may be in your bester interests to contact your local accountant or tax professional to discuss your taxable income.
For more information on how the new tax processes has or will affect you as a home seller, contact Cheryl Barnes.
Cheryl Barnes is your Westshore Living expert, providing a personal approach to buyers and sellers wanting to enter the Victoria real estate market. As a Top Producer and Top RE/MAX Camosun Realtor, you can be assured that Cheryl exceeds clients’ expectations and is prepared to help you with your home ownership dreams.
 For a more comprehensive at personal, business, corporate, trust, and partnership income in Canada, visit the Canada Revenue Agency’s website on income tax: https://www.canada.ca/en/services/taxes/income-tax.html  See Erica Alini’s article on “Canada’s 2018 tax season: 6 things you need to know” for more information: https://globalnews.ca/news/4062709/canadas-2018-tax-forms-deadline-whats-new/  See the CRA’s page on “Principal residence and other real estate” for more 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-127-capital-gains/principal-residence-other-real-estate.html  See the CRA’s “Sale of your principal residence” for more 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-127-capital-gains/principal-residence-other-real-estate/sale-your-principal-residence.html  However, in some cases, the rules regarding the change in use of a property do not apply. For more information, see the Special Situations section under “Changes in use”: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-127-capital-gains/principal-residence-other-real-estate/changes-use.html  See “Do you have to report to the Canada Revenue Agency the foreign property that you own?” for more information: https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2018/do-you-have-to-report-to-the-canada-revenue-agency-the-foreign-property-that-you-own.html  See Jamie Golombek’s article, “Disappearing credits, principal residence sales and more things to watch for as you fill out your tax return,” for more information: https://business.financialpost.com/personal-finance/taxes/disappearing-credits-principal-residence-sales-and-more-things-to-watch-for-as-you-fill-out-your-tax-return?utm_campaign=Echobox&utm_medium=Social&utm_source=Facebook  After you have filed your taxes using a tax professional, accountant, or do-it-yourself program, you can sign up for your own ‘My Account’ with the CRA where you can access you Notice of Assessment online. This article is for informative purposes only and should not be used for financial advice. Please contact your local accountant or tax professional for more information on how these new tax changes may affect your income tax return.