If you acquire a A qualifying home must be registered in your and/or your spouse's or common-law partner's name in accordance with the applicable land registration system and it must be located in Canada. It includes existing homes and homes under construction.
The following are considered qualifying homes:
* single-family houses;
* semi-detached houses;
* mobile homes;
* condominium units; and
* apartments in duplexes, triplexes, fourplexes, or apartment buildings.
qualifying home, you might qualify for a home buyers’ tax credit (HBTC), which is a non-refundable tax credit worth up to about $750. Generally, to be eligible for the HBTC, the following conditions must be met:
If you are a person with a disability or are buying a qualifying home for a related person with a disability, you may not need to be a first-time home buyer. However, the home must be acquired to enable the person with a disability to live in a more accessible dwelling or in an environment better suited to the personal needs and care of that person.
A qualifying home is a housing unit located in Canada acquired after January 27, 2009 which can be an existing home or one that is being constructed. Single-family homes, semi-detached homes, townhouses, mobile homes, condominium units, and apartments in duplexes, triplexes, fourplexes, or apartment buildings all qualify. A share in a co-operative housing corporation that entitles you to possess and gives you an equity interest in a housing unit located in Canada can also qualify (however, a share that only provides you with a right to tenancy in the housing unit will not qualify). The home must be intended to be used as your principal place of residence, or the principal place of residence of the person with the disability, within one year after acquisition to qualify.
This credit may be claimed in the year the qualifying home is acquired. Either you or your spouse or common-law partner can claim this non-refundable tax credit or you can share the credit. However, the total of both claims cannot exceed $750.
Note that even though the eligibility conditions for the HBTC are similar to the Home Buyer’s Plan, they are not connected. Being eligible for the HBTC will not affect your participation in the Home Buyer’s Plan.
For 2016 and subsequent tax years the Home Accessibility Tax Credit (HATC) is available to individuals 65 years or older at the end of the tax year, and to individuals who are eligible to claim the disability tax credit, when they incur qualifying renovation expenditures. These qualifying expenditures must relate to gaining access to, improving mobility within, or reducing risk of harm within the eligible dwelling located in the individual’s principal residence in Canada. As well, these expenditures should be related to a renovation or alteration to the eligible dwelling that are of an enduring nature.
Qualified taxpayers may claim up to $10,000 in qualifying expenditures per year, which could result in a maximum non-refundable tax credit of $1,500. As well, if those expenditures happen to also qualify for the medical expense tax credit, both credits can be claimed in respect of the expenditures.
The HATC credit determination can be complex. Consult a Chartered Professional Accountant for more information.
The Home Renovation Tax Credit for Seniors and Persons with Disabilities assists eligible individuals 65 and over and persons with disabilities with the cost of certain permanent home renovations to improve accessibility or be more functional or mobile at home. The permanent home renovations must be to improve home mobility, accessibility, or functionality.
The program for seniors began April 1, 2012. Qualifying renovation costs must occur on or after April 1, 2012, for seniors and family members living with seniors. Starting February 17, 2016, the home renovations program has expanded to include persons with disabilities and family members living with these individuals. Qualifying renovation costs must occur on or after February 17, 2016, for persons with disabilities and family members living with them.
Eligible persons must be:
In order to be eligible you must meet the criteria on the last day of the tax year. Qualified taxpayers may claim up to $10,000 in qualifying renovation expenditures per year, which could result in a maximum refundable tax credit of $1,000.
Consult a Chartered Professional Accountant for more information.
If you rent out all or a portion of your house you may deduct certain expenses connected with earning from that rental income. These expenses include the proportion of your property taxes, mortgage interest, repairs and maintenance, insurance, light, heat, other utilities and various other expenses that relate to the rental space on your house. You may also deduct expenses related to modifying a building to accommodate persons with disabilities. However, you may not deduct the principal portion of your mortgage payments or any costs of construction, renovation or alteration that are capital in nature.
You may claim a capital cost allowance on any depreciable assets in your rental property (i.e., building, furniture, and fixtures, etc.). If, however, you sell your house and the proceeds allocated to the depreciable assets are in excess of their Depreciated cost is the original cost plus additional cost less the capital cost allowance deductions.depreciated cost, you have to report as income in the year the recapture of the previously deducted capital cost allowance. This capital cost allowance recapture is taxed in the year of disposition in the same way as rental income – it is not a capital gain and it is not offset by the principal residence exemption.
Care should be taken before claiming a deduction for capital cost allowance on a rental property as the deduction cannot increase or create a rental loss. The capital cost allowance deduction could merely be deferring tax to a higher income year when the property is sold. Be aware that claiming a deduction for capital cost allowance on your house might jeopardize your ability to claim the principal residence exemption to offset a future sale of the property.
Seek the advice of a Chartered Professional Accountant when considering investing in a rental property or turning a portion of your home into a rental property so that you know the income tax implications, the deductions available, and the implications of claiming a deduction for capital cost allowance.
If, during the year, you begin to use your residence or former residence as a rental property, a "change in use" for income tax purposes results in a deemed disposition of the property at its fair market value at that time. Similar rules apply when you have a change in use of a rental property (or a former rental property) to a residence. The change in use could lead to a significant and unexpected income tax liability. Special elections are available in certain circumstances to avoid or defer the deemed disposition on a change in use event.
If you have a change in use of a property you should consult a Chartered Professional Accountant to understand the income tax implications and ensure the necessary elections are filed to avoid or defer the deemed disposition.
Most of us know that Canada provides an exemption from taxation for capital gains realized on the sale of a "A principal residence is a housing unit ordinarily inhabited in the year for which it is being designated by you as a "principal residence". This does not require the housing unit be lived in by you on a full-time basis throughout the year but generally it means you must have lived in it at some point in each year being designated.principal residence". While this sounds simple, the rules are complex.
Several changes have been announced in 2016 to the principal residence exemption rules. For 2016 and subsequent tax years, individuals who sell their principal residence must report the disposition on their tax return in the year of sale, make the designation in the return, and might also be required to file Form T2091 to claim the exemption. This form, which was not required in the past, is very important for reporting the sale of your residence for 2016 and later years if you are not designating the property as your principal residence for all years that you owned the property.
An individual who was a non-resident of Canada in the year they acquired the principal residence will need to calculate their exemption slightly differently than a Canadian resident individual. There are also changes which restrict the use of the principal residence exemption for property owned by trusts.
The rules related to the principal residence exemption can be complex. If you are considering selling a property that may qualify for the principal residence exemption, you should consult a Chartered Professional Accountant to determine the income tax implications and the tax reporting requirements.
A You have a capital gain when you sell, or are considered to have sold, a capital property for more than the total of its adjusted cost base and the outlays and expenses incurred to sell the property.capital gain is the amount realized from the sale of assets that are “A capital property is an investment asset on which you expected to earn investment income.capital property” – the difference between the proceeds of sale and the cost of the property. For income tax purposes, the cost of the property is called the "Usually the cost of a property plus any expenses to acquire it, such as commissions and legal fees.
The cost of a capital property is its actual or deemed cost, depending on the type of property and how you acquired it. It also includes capital expenditures, such as the cost of additions and improvements to the property. You cannot add current expenses, such as maintenance and repair costs, to the cost base of a property. adjusted cost base" (ACB).
Only half of capital gains are taxable, this amount is the “The portion of your capital gain that you have to report as income on your income tax and benefit return.
If you realize a capital gain when you donate certain properties to a qualified donee or make a donation of ecologically sensitive land, special rules will apply. For more information, see Gifts of shares, stock options, and other capital property. taxable capital gain”, and the other half is not included income.
Generally, if you gift an asset, you will have a deemed disposition of the asset at its fair market value and a capital gain to the extent its Usually the highest dollar value you can get for your property in an open and unrestricted market, between a willing buyer and a willing seller who are acting independently of each other.fair market value exceed ACB. Alternatively, you will have a capital loss on the asset to the extent its fair market value is less than ACB (there are rules that suspend or deny capital losses under various circumstances). In certain circumstances where a capital gain is realized on property donated to a Canadian registered charity, the entire capital gain can be tax exempt.
Capital gains realized by individuals on a disposition of shares of a "Canadian-controlled private corporation" engaged in an active business that meets the definition of a "qualified small business corporation" can be offset with the individual's cumulative "lifetime capital gains exemption". The "lifetime capital gains exemption" limit for 2016 is $824,177. For the capital gains on the sale of qualified farming or fishing properties the "lifetime capital gains exemption limit" is $1 million. While the "lifetime capital gains exemption" may offset the individuals’ capital gain, the capital gain must still be reported in the individual’s tax return.
Given the favourable treatment of capital gains, it might be more tax effective to hold investments that will yield capital gains outside of a RRSP, RRIF, or TFSA, and hold other assets inside a RRSP, RRIF, or TFSA. Contact a Chartered Professional Accountant to help create tax strategies to take advantage of the lower tax rates for capital gains.
A capital property is an investment asset on which you expected to earn investment income.capital property
There are four types of capital losses:
Capital losses from listed personal property, such as artwork, jewellery, stamps, and coins, are only deductible against capital gains on listed personal property.
Losses from the sale of personal use properties, such as a car, boat, or home, are generally not deductible.
A loss from the sale of certain small business corporation shares or debt may be an “business investment loss”, one-half of a business loss is an “allowable business investment loss” (ABIL). An ABIL is a capital loss; normally a capital loss is only deductible against a capital gain but an ABIL is deductible against other sources of income. The ability to claim an ABIL may be limited by previous capital gains exemption claims. The CRA will audit the deduction for an ABIL; you must be able to prove the amount of the investment, the type of investment and provide evidence of the investment loss.
Losses on the sale of other capital properties must first be netted against capital gains realized in the year. Any excess amount may then be carried back three years (use Form T1A) or forward indefinitely to offset capital gains realized in future years.
Generally, a “superficial loss” can occur when you dispose of capital property for a loss and you, or a person affiliated with you, buys the same or identical property during the period starting 30 calendar days before the sale and ending 30 calendar days after the sale, and you or such affiliated person still owns the substituted property 30 calendar days after the sale. If you have a superficial loss, you cannot deduct it when you calculate your income for the year. However, if you are the person who acquires the substituted property, you can usually add the amount of the superficial loss to the adjusted cost base of the substituted property. This will either decrease your capital gain or increase your capital loss when you sell the substituted property.
Losses triggered on the transfer of assets to an RRSP, RRIF, or TFSA are deemed to be zero for tax purposes.
If you have capital gains in the year or prior three years and unrealized losses on your investments, as you approach year-end you might consider triggering those losses before the year-end to offset current year capital gains or to carry your capital losses back. Be aware that there are “stop-loss” rules designed to negate losses triggered on “superficial” transactions, so contact a Chartered Professional Accountant to help you devise a loss-selling strategy.
If you gift an asset to someone, you are deemed to dispose of the asset at its fair market value which can result in a gain to the extent the fair market value of the asset exceeds its "The adjusted cost base (ACB) is usually the cost of a property plus any expenses to acquire it, such as commissions and legal fees.adjusted cost base" (ACB). If the gifted asset is a A capital property is an investment asset on which you expected to earn investment income.capital property to you, the resulting gain will be a capital gain (only half of the gain is taxed). The recipient of the gift is deemed to acquire the asset at its fair market value. There are some exceptions to this fair market value rule, most notably transfers of capital property to a spouse, a spousal trust, an alter ego trust, or a joint spousal trust, where the disposition is deemed to be at the particular property’s ACB unless the taxpayer elects otherwise.
If you gift an asset that has a fair market value less than its ACB, the resulting loss to you may be denied or suspended depending on the circumstances of the gift and your relationship to the recipient.
If you sell an asset to a non-arm’s length person for a price that is less than fair market value, for income tax purposes you are deemed to sell the asset at fair market value but the purchaser is deemed to buy it at the agreed price so their ACB is lower than your proceeds of sale. If you sell an asset to a non-arm's length person for a price greater than its fair market value, the purchaser is deemed to have paid fair market value, meaning the purchaser's ACB is reduced to the asset's fair market value without a compensating reduction in your proceeds of disposition. In both cases, the one-sided adjustment can be quite punitive because it results in a double tax – it pays to carefully consider and document the fair market value in all non-arm’s length sales.
If you sell an asset to an “An affiliated person could be your spouse, or certain corporations that you or your spouse control.affiliated person” at a loss (where the fair market value is less than the ACB), the loss will be suspended until that asset is sold to an “unaffiliated” person.
If you make an RRSP or TFSA contribution by transferring an investment asset to your RRSP or TFSA, you will be deemed to have disposed of the investment at its fair market value. If the fair market value of the investment exceeds its ACB, you will have a capital gain from the contribution. If the fair market value of the investment is less than its ACB, the capital loss will be denied.
If you plan to gift, sell, or transfer an asset to a non-arm’s length person or to your RRSP or TFSA, contact a Chartered Professional Accountant to help you assess the income tax implications and planning options.
Canadian residents are required to report their income from all sources around the world. In addition, every individual must indicate on their personal income tax return whether they own specified foreign property with an aggregate cost of $100,000 or more. To determine the cost of foreign properties acquired in a currency other than Canadian dollars, use the exchange rate in effect at the time the property was purchased. Shares of non-Canadian companies held in a non-registered Canadian investment account are specified foreign property, so the reporting requirement can apply to you even if you don’t own any property outside Canada.
If you own specified foreign property with an aggregate cost of more than $100,000 you must complete and file Form T1135 by your tax return due date. Individuals do not need to complete this statement for the year in which they first became a resident of Canada, but they still need to report on their Canadian income tax return for that year the foreign property income earned after becoming a resident of Canada.
The Canada Revenue Agency has implemented changes to Form T1135 for the 2015 and later tax years. The changes allow taxpayers who held specified foreign property with a total cost amount of more than $100,000 but less than $250,000 throughout the year to report under a new simplified reporting method.
For taxpayers who held specified foreign property with a total cost of $250,000 or more throughout the year, the current detailed reporting method will apply. However, under the current detailed reporting method, taxpayers are allowed to report the aggregate amounts for specified foreign property held in accounts with registered securities dealers and Canadian trust companies rather than providing the detail of each such property. This reporting method requires taxpayers to provide the aggregate fair market value of the property in each account on a country by country basis.
Specified foreign property does not include property that is purely for personal use and generates no income. If the foreign property (for example, a vacation home) is not used to generate income, then it does not have to be reported as foreign property. Foreign property used exclusively in an active business, foreign property held through a Canadian mutual fund, and foreign property held in an RRSP or TFSA are also exempt from this reporting requirement.
Other foreign property reporting may be required where you own foreign corporations, have transferred or loaned funds to a non-resident trust, or received distributions from or borrowed funds from a non-resident trust.
The foreign property reporting requirements are complex, and failure to comply with the reporting requirements can result in significant penalties. Contact a Chartered Professional Accountant to help you understand the reporting requirements and identify tax-planning opportunities for foreign tax credits.