Tax Time: are you ready?
April’s here … and it marks a very busy time for most people! Why? Because it is time for Canadians to file their income taxes to the CRA! Some dread this month (especially your tax accountants) while others may anticipate their tax return upon submitting. Regardless which side of the spectrum you’re on, you must be prepared! This is no joke … you’re dealing with the government! LOL.
I recently had a very interesting conversation with my own tax accountant. The topic is around capital gain. An investor asked me earlier this year if he bought a property and decided to sell it for a profit (since the market is so hot these days!), does it automatically mean that he will incur capital gain? One would assume yes right? Not necessary, my accountant explained to me that if your business is mainly flipping properties and with a very short holding time, then one can argue that your gain is not capital gain but as active income. This causes a HUGE difference in not only filing your tax income, but how much tax you’d actually be paying! This means that it’s you or your business’ main source of income and it’ll be taxed at the regular business income tax rate.
Therefore, investors should be aware that capital gain tax is not necessary bad. CRA states that only 50% of your gain is taxable at your current tax bracket rate. So, depending on your income bracket, and the amount of profit you made from the sale of your short-lived property, you may or may not be benefiting from declaring as capital gain or as a straight business income. You should speak with your tax accountant to help you structure your personal and your business income to maximize the profits you made and limit the amount you have to pay tax on.
One of the major tax breaks that we get in Canada is that when we sell our principal home, the profit is tax free and exempted from this capital gain tax law. Another reason for us to celebrate how great it is to be living in Canada!
This blog is just to give you some ideas on capital gain and prepare you before you purchase your next investment property. Since we, at CE Properties, are not licensed accountants and each person’s tax situation and structure is different, we strongly recommend you to hire a competent accountant who has experience in real estate tax laws to guide you in your RE investment journey.
Our goal for you, as investors, is not only to make money in real estate, but to be able to protect and keep your profit you worked so hard for as well! So, preparation is key in any decision making processes you make! With that, we’d like to wish you happy tax time … and as always, happy investing!