For individuals with a capital gain of more than $250,000, they will be taxed on 66.67% of the gain as income—up from the current 50% rate, according to Budget 2024. This inclusion rate change comes into effect on June 25, 2024. Every week, our inbox is full of letters from readers asking how to avoid the capital gains tax. They want to know how to work the system and keep more money in their pockets. Listen, it’s valid to want to hold on to the money earned off of the sale of a secondary residence (cottage, second home) and an investment property (rental or commercial property).
According to RE/MAX Canada’s Cottage Trends in Canada in 2024 report, the average price of a cottage in Canada is expected to rise this year by 6.8% from 2023—which is not small change. So, the idea that you’re forking over half your money simply isn’t true. The need to dispel this rumour is what inspired this guide to capital gains on the sale of property, which will answer the most common questions with our most popular articles on the topic.
And while we cannot show you how to avoid taxes (it’s one of two things you can’t avoid in life—death is the other), I can share insights on how to use any Canada Revenue Agency (CRA) rules in your favour.
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What are capital gains in Canada?
According to the MoneySense Glossary, “a capital gain is the increase in value on any asset or security since the time it was purchased, and it is ‘realized’ when the asset or security is sold.” In the case of this article, the asset we are dealing with is property, which could be a cottage, second home, investment or rental property, as stated above.
Watch: Capital gains tax, explained
Can you have a capital loss?
Our definition of capital gains begs the question: “Can you have a capital loss?” Yes, you can. A capital loss occurs when you sell a property for less money than you originally purchased it for. In some cases, you might be able to use a capital loss to reduce your income for your tax return, if you are reporting capital gains in the same year.
Speaking of tax, a capital gains tax is the money owed in taxes from the income earned. It’s not a specific tax, per se…. But more on that below.
For more on the ins and outs of how capital gains works, read: Capital gains explained.
How are capital gains calculated? How are they taxed?
Before we dive into the tax part, let’s go through how to calculate capital gains on the sale of a property. Essentially, this calculation figures out how much the property’s value grew from when you first bought it to the day you sold it. This above is a simple-math calculation of the capital gain.