How Much Tax do I Pay When Selling My Home in Canada?

In today’s economy, real estate is one of the best ways to generate wealth and fund your retirement. But while asset appreciation has been enormous, sellers should be asking themselves this very important question: How much tax do I pay when selling my home in Canada?

What makes the Canadian real estate market attractive is that you do not pay any taxes on the sale of your principal residence. As a Canadian resident, you will be given the principal residence exemption. Put simply, any profit you garner from selling your primary residence will not be taxed.

Considering how Canada’s housing sector experienced exceptional growth in the last couple of years, many homeowners who sold their residential properties enjoyed immense tax-free gains.

Of course, there are a few exceptions. Still, the fact that there is no capital gains tax when you are selling your home be it a detached house in rural British Columbia or a condominium in the heart of Toronto, is appealing to many Canadians.

That said, here are taxes you might pay when selling your residential property in Canada.

Taxes You Might Have to Pay When Selling a House in Canada

How much tax do you pay when selling a home in Canada? Here are three that may come up on the sale of your property:

GST/HST

Are you selling a newly constructed or significantly renovated home? If so, you might be required to charge the GST or HST on the sale. At the same time, if the property was your primary residence, you might be able to apply for a rebate of some or all the GST/HST paid. In addition, the size of the rebate will also depend on the sale price of your home and how much GST or HST was paid.

Ultimately, to determine if you are qualified, you have to file a GST/HST new housing rebate application with the Canada Revenue Agency (CRA) within two years of the sale date.

You should also know that even if the home you sell is your primary residence, there is some GST/HST to be paid. The commissions paid to your real estate agent are subject to GST/HST. For example, if you pay a five-per-cent commission on the sale of a $500,000 home ($25,000) in Ontario, you can expect to pay an additional $3,250 in HST.

Capital Gains Tax

In the last few years, there has been discussion about introducing a capital gains tax on property values of at least $1 million to raise revenues for cash-strapped governments. Canada Mortgage and Housing Corp. (CMHC) considered a 0.2 per cent penalty on homes valued between $1 million and $1.5 million and up to one percent on residential properties valued above $2 million.

So far, this idea has not gotten very far in public policymaking at any level of government.

For now, while you do not need to pay a capital gains tax on the sale of your principal residence, the rules will be different if you own a vacation home or a rental property. Typically, you can still apply for a partial exemption, but the calculations are a bit more intricate. For “house flippers,” the likelihood of paying capital gains tax is high if the property has not been your principal residence for at least a year. Therefore, you may need to hire the services of a tax professional to guide you through this process.

Property Tax

Generally, property taxes are paid on a pro-rated basis. This means that you will be required to pay a part of the property taxes for the year of the sale.

Non-Canadian Resident Owners

The tax implications are slightly different for non-Canadian resident owners or individuals who are  Canadian citizens but do not reside in the country. There are several aspects that non-resident owners must be aware of when selling a property:

  • Apply for a clearance certificate.
  • A non-resident withholding tax of 25 per cent of the home’s gross sales price (50 per cent if it is a rental property).
  • File a Section 216 return to confirm that they have reported rental income and paid taxes (this is if the property has been rented out).
  • Submit a Canadian tax return for the year of the sale.

Assistance is Important

The taxes you are responsible for are in addition to the myriad of other real estate-related fees you will inevitably have to pay, such as agent commissions, mortgage discharge fees, moving costs, and many other expenses.

When you are selling your home, it is imperative to seek the assistance of tax professionals, legal experts, and real estate agents to ensure that you are fully informed about what taxes and fees you will need to pay upon the sale of your home. Remember, the taxes and fees you must pay will depend on a broad array of factors, like the sale price, the property’s location, and whether it is your primary or investment property.

Yes, real estate can be a wealth generator. But you also need to be aware of the tax implications.

As the saying goes, it is better to be safe than sorry.

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