Capital gain, loss may mean payment, refund for taxes
In November 2006, I sold a house that was purchased in 1999 as an investment. The closing is in May 2007. When do I report the sale and how much tax should I expect to pay?— Mario, Toronto
Q: In November 2006, I sold a house that was purchased in 1999 as an investment. The closing is in May 2007. When do I report the sale and how much tax should I expect to pay?
A: The closing date of the sale determines the year the sale is reported for tax purposes. A house purchase in 1999 would most likely have appreciated. Toronto has experienced a mini housing boom for the past several years and if you speak to real-estate agents, the expectation for real estate will continue to offer more modest appreciation. An investor in real estate that disposes of a property can either have a capital gain/loss and/or recapture of income/terminal loss.
When individuals dispose of an investment for proceeds greater than the original purchase price, they will have a capital gain; 50 per cent of the capital gain is subject to tax at the individual’s tax rate. Should a taxpayer have claimed Capital Cost Allowance (CCA) in the prior years, there may also be a recapture of income. In other words, a taxpayer may have to pay tax on the taxable capital gains and possibly tax on the recapture of income on the CCA taken in past years.
An investment sold for less than the original cost will not be able to claim a capital loss on the building but may claim a terminal loss. This loss can be used to reduce other forms of income such as employment income, investment income and business income.
Real estate is a very specialized area and investors should seek both legal and tax advice before selling an investment.
Q: Can I claim my elderly parent that lives with my wife and I? She is 70 years old and only collects CPP and OAS.
A: The caregiver tax credit is available to taxpayers that have the responsibility for looking after a parent/grandparent (over 65 years old) or an infirm dependent relative. This is a non-refundable tax credit and can be claimed by either spouse. However, the amount of claim may be reduced by the dependent’s net income in excess of $13,430.
Henry Choo Chong, CGA provides accounting and tax services to individuals and businesses in the GTA. He can be reached at 416-590-1728, ext. 304. Any questions to Money Matters should be e-mailed to firstname.lastname@example.org.