What Taxes Do You Need To Pay When Selling a House in Ontario?
August 2, 2024
Selling a house in Ontario involves various tax implications, including capital gains taxes and property flipping rules. Understanding these taxes, such as the underused housing tax and the principal residence exemption, is crucial.
This guide will break down what taxes you must consider and how to navigate them effectively when selling your property in Ontario.
Understanding Taxes When Selling a House in Ontario
Selling a house in Ontario requires knowledge of the several taxes that can be applicable. Homeowners and investors need to be more knowledgeable about recent changes to tax laws, including unused housing tax and capital gains tax guidelines, now more than ever. It is a thorough tutorial on knowing your taxes due upon Ontario house sales.
Capital Gains Taxes on Recreational Properties
Most homeowners find that selling their main house is exempt from capital gains tax. However, this exemption does not apply to recreational properties. Budget 2024 states that recreational property capital gains—such as those on cottages—are taxed differently. Should you sell a recreational property and earn more than $250,000, 66.67% of the profit will be liable for taxes as income. It marks a notable rise from the 50% rate in past years.
Should you sell a recreational property at a loss, you may be able to balance other income on your tax return using this capital loss. Working with a tax professional helps one negotiate this tax control component.
Property Flipping Taxes
Another essential tax consideration is the property flipping rule, which came into effect on January 1, 2023. Under this criterion, the profit from selling a house you have held for less than twelve months is categorized as business income rather than capital gains. It follows from this that it is liable to more outstanding taxes. Usually protecting the sale of your main house from capital gains tax, the principal residence exemption does not apply to properties purchased and sold within 12 months for profit.
Principal Residence Exemption
The principal residence exemption is one significant tax advantage that lets homeowners sell their main house free from capital gains tax on the proceeds. Three requirements must be satisfied on the property to qualify for this exemption.
Property has to be owned by the taxpayer.
The taxpayer or their family members regularly occupy the property as a house.
The property must be declared the taxpayer's principal residence for every year of ownership.
Notably, you can only name one property as your principal residence annually. If you have several properties, thorough planning and classification are vital to maximize tax advantages.
The Underused Housing Tax
Besides capital gains and property flipping regulations, Ontario has also instituted the unused housing tax to solve the vacant house problem. This tax targets homes left uninhabited for long stretches and not utilized as primary residences.
You can be liable to this tax if you own a home in Ontario that is not your primary residence and is mainly underused. The aim here is to encourage the effective use of residential properties and reduce the effect of housing shortages.
Is the CRA Monitoring Your Transactions?
The Canada Revenue Agency (CRA) has sharpened its examination of real estate transactions in line with the current emphasis on tax compliance. Based on accounts of unpaid taxes in big cities such as British Columbia, the CRA is evidently employing sophisticated techniques and data analytics to guarantee accurate reporting. To avoid fines, homeowners and investors should be alert in their reporting.
Consulting Professionals
Given the complexity of tax laws involving real estate purchases, seeing a tax expert or real estate attorney is especially advised. They can offer customized recommendations depending on your circumstances, guaranteeing tax law compliance and maximizing tax results.
Calculate Your Land Transfer Tax with Bungalow Finder
Understanding land transfer tax is crucial when buying or selling property in Ontario. Bungalow Finder offers a handy Land Transfer Tax Calculator to help you estimate this cost easily. Enter the purchase price of your house, and our tool will figure out the expected tax due, enabling more sensible budgeting. Whether you're negotiating the complexity of purchasing or selling a home, our calculator is a great tool to ensure you're ready for all the financial facets of any real estate deal.
