With the continuous increase in home prices, the government has tried different ways to cool down the market, such as a “foreign buyer” tax in Ontario, the nationwide mortgage “stress test,” etc. However, all of these attempts haven’t succeeded so far. One method is still on the table, which is the capital gains tax exemption on Canadians’ primary residences.
Again, this change might not happen, but if it does, it could cost homeowners a ton of money.
Why homeowners enjoy a capital gains exemption
Canada is one of the countries that doesn’t tax homeowners on the proceeds of selling their homes. Therefore, if a homeowner sells their home 20 years later, they can get their full benefits of two decades’ worth of appreciation. And another thing is, they don’t need to give up any of their profit to taxes. For that reason, Canadian real estate is an attractive and desired investment for many people. However, they might change their thoughts if the government implements a capital gains tax.
What a capital gains tax on a home would cost
Unfortunately, there’s no correct formula to calculate how much homeowners will lose; tax rates vary from province to province, and the amount they pay would depend on how much their home costs and how much they were able to sell it for.
Still, to picture how big a bite a capital gains tax could put on the sale of a home, MoneyWise used a capital gains tax calculator provided by real estate service provider Wowa with the benchmark prices from the Canadian Real Estate Association. And here are the results:
British Columbia
○ Purchase price: $800,000
○ Sale price: $960,000
○ Approximate capital gains tax: $29,228
Alberta
○ Purchase price: $500,000
○ Sale price: $600,000
○ Approximate capital gains tax: $16,246
Saskatchewan
○ Purchase price: $400,000
○ Sale price: $480,000
○ Approximate capital gains tax: $13,609
Manitoba
○ Purchase price: $400,000
○ Sale price: $480,000
○ Approximate capital gains tax: $15,495
Ontario
○ Purchase price: $900,000
○ Sale price: $1.08 million
○ Approximate capital gains tax: $36,699
Quebec
○ Purchase price: $500,000
○ Sale price: $600,000
○ Approximate capital gains tax: $20,858
New Brunswick
○ Purchase price: $300,000
○ Sale price: $360,000
○ Approximate capital gains tax: $10,704
Nova Scotia
○ Purchase price: $400,000
○ Sale price: $480,000
○ Approximate capital gains tax: $15,384
Prince Edward Island
○ Purchase price: $300,000
○ Sale price: $360,000
○ Approximate capital gains tax: $10,704
Newfoundland and Labrador
○ Purchase price: $300,000
○ Sale price: $360,000
○ Approximate capital gains tax: $10,688
Those tax losses aren’t too high on their own, but in most provinces, homeowners theoretically could be asked to give up to around 15 percent of their profits if they sold their home last year and had to pay a capital gains tax on their 2021 return similar to the one investors pay.
Will homeowners have to worry about a capital gains tax on their homes?
There is no proof that the government will implement a capital gain tax on residences. However, in the effort to cool down home prices, some measures might be applied.
According to MoneyWise, the federal just passed up an opportunity to incorporate a capital gains tax on primary residences in its April 19 budget proposal. Instead, minister of finance Chrystia Freeland has proposed a nationwide 1 per cent tax on the value of vacant or underused “non-resident, non-Canadian owned residential real estate” which will take effect next Jan. 1 if the Liberals’ budget is approved.
Source: MoneyWise
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