Canada: Personal Taxation
Provinces and territories apply their own local taxes on real estate, usually based on the value of the property and its use.
Where a Home Buyer’s Plan is utilised to assist in buying or building a home, a maximum of C$25,000 can be borrowed from the individual’s registered retirement savings plan; no income tax is charged on the amount borrowed. The purchase or building of a new home, or substantial renovation of an existing home, may qualify for a rebate of a portion of the GST/HST paid on the purchase or renovations. Further, the purchase or building of a new residential property that is to be used as rental accommodation may also qualify for a GST/HST rebate.
The First-Time Home Buyer’s Tax Credit can be claimed by eligible individuals – the credit is calculated using the lowest income tax rate (15% for 2012) multiplied by C$5,000. Thus, for 2012, the credit is C$750.
Where real estate has been purchased with the sole aim of reselling at a profit, or developing the real estate in a manner that can be deemed a business pursuit, the usual capital gains tax rules (whereby only 50% of the gain is subject to income tax) do not apply, and the whole gain becomes subject to income tax.
The sale of an individual’s principal residence is generally exempt from capital gains tax. Land attached to the principal residence in excess of half a hectare is not included in the exemption, and is therefore charged to capital gains tax.
A C$750,000 lifetime capital gains exemption (which equates to a C$375,000 lifetime capital gains deduction, based on the 50% of capital gains rule) can be claimed by an individual who disposes of:
- Qualified small business corporation shares;
- Qualified farm property; and
- Qualified fishing property.
This lifetime exemption can prove particularly useful in estate planning.