Real estate is property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this (also) an item of real property, (more generally) buildings or housing in general. In terms of law, real is in relation to the land property and is different from the personal property while estate means the “interest” a person has in that land property. Accordingly, taxes for real estate buyers in Canada have their own legal specifics.
It is important for this category of investors to be aware of the additional taxes associated with the purchase, maintenance, and sale of real estate.
Real estate acquisition tax
The main tax upon purchase is on the transfer of ownership. The rate is progressive depending on the value of the object: from 0.5% (for the first $55,000) to 2% (for an object over $400,000).
Also, the amount of tax depends on the province. Three provinces have no tax: Alberta, Nova Scotia, and rural Saskatchewan. And if the object is located in Toronto, the tax will have to be paid in double the amount.
For those who buy housing for the first time, the provinces have special programs that allow you to return the tax. For example, in Ontario, purchases up to $368,333 are eligible for a full tax refund, above that, you receive a $4,000 rebate.
If you buy a new or refurbished home, it will also be subject to a Goods and Services Tax (similar to VAT) between 5 and 15%. Non-residents can buy real estate in Canada without significant restrictions but are subject to additional tax. In Canada, there is a real estate tax, which consists of three parts: the city tax, the education tax, and the city building fund levy.
The amount of the tax is determined by the municipality, on average it is about 1% of the market value of the object.
Rental Income Tax
The tax rate on rental income depends on the type of taxpayer: individual, partnership, or business. Individuals pay standard income tax: residents of Canada – on a progressive scale, non-residents – 25%. In a partnership, income is divided between partners, and each pays tax on it at his own rate.
For companies, the base tax on rental income is 38%, but this can be reduced to 15% through rebates. For this, it is important that the business is active: with five full-time employees. In this case, registering investment property for a company is more profitable than for an individual.
Quite a few types of expenses can be deducted from taxation, for example, for repairs, advertising, insurance, mortgage interest, and fees of specialists (realtors, lawyers, etc.).
Real estate sales tax
In fact, there is no tax on the sale of real estate. But if you sold real estate for more than you bought, for companies the profit will be subject to corporate tax, for individuals – income tax (50% of income). When selling, all related costs can be deducted from the tax base.
If you are selling a property that was your primary residence for the entire time you owned it, capital gains are not taxable.
However, if you have not lived there for some time, but, for example, rented a house, think in advance about how you will reflect capital gains for all periods in your tax return – in this case, there is a high probability that you still need to pay tax.
Read more: https://taxtaxation.com/taxes-in-canada-for-investors/
