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Capital gains: Should you declare them?

December 15 2015 by Denis Doucet

You sold your house for profit. Do you have to pay tax on the profit? 
No. If you sell your primary residence, you don't have to declare capital gains or pay any tax.

In fact, according to Revenue Canada, how you define your primary residence determines whether you have to declare profit and pay tax. Primary residence means that property where you spend the majority of your time, or the place where you receive your bills and have the address printed on your identity cards. It could be a cottage, chalet, condo, trailer or duplex.

Exceptions

There are exceptions to the rule:

  • Dimensions of the land. If the dimensions of the property are more than 58 000 square feet, you will have to justify personal use or pay tax on the excessive portion of land. 
  • If the usage of your primary residence changes. You can declare capital gains in the year it changes. This would apply if you sell part of your residence, or convert part of it to rented space (a bachelor, a basement apartment etc.).
  • If your residence becomes your workplace and source of revenue. The portion of your home used as a workspace is considered a business space. The proportional value of the purchase price plus other expenses are considered the adjusted base price. All gains made in the selling price will be subject to capital gains.  
  • If your family is separated, the house may not always be your primary residence. If you alternate residences, for example, you may be in a legally obscure position. Still, if you renovate your home and sell it for more, you can get an exoneration. However, the revenue agency may argue that your activities are business activities and you will be charged with business tax, not capital gains. This could end in an even higher rate. This is not something we want to happen. 
Key takeaways
  • You don't have to pay capital gains on your primary residence
  • You may have to pay capital gains on a property with more than 58 000 square feet of land
  • If a portion of your residence generates an income, you will have to pay capital gains on that portion.
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