taxation avoidance

[orei]

I'm considering making a sale of a property in which I would have a capital gain in the 6 figures region. From what I've been led to believe, 1/2 of the capital gains is taxable. Is this correct? The property is held in my personal name, not as a corporation.



Are there any mechanisms that can be used to reduce taxation? Are there any breaks available if I re-invest the gains in Real Estate?



Is there any sort of capital gains exemptions that could apply?



Just to pre-empt the ubiquitous comment about consulting an accountant ... I am in the process of doing this as well. This is just an attempt to educate via the wealth of knowledgable people using this site

 

[Albertritchot]

The Capital Gains 2010 Guide can offer some information regarding capital gains.



http://www.cra-arc.gc.ca/E/pub/tg/t4037/t4037-10e.pdf



There are two topics you might want to read:



1) Calculation of the capital gains Page 10 right column read example.



2) The concept of reserves. Page 11 right column Claiming a reserve.





Hope this helps.



Albert

 

[MarkHealy]

hi

just a total side point

nice use of ubiquitous

you just don't see that often



In another post the account comment was used and did side tract the issue



kudos on the word and sticking to the question



We did just get the 7 figure capital gain and an accountant using dividends, capital dividends and other strategies was able to reduce the taxes. It did take 2 years, the original and a dividend in the second to recoup some of the taxes.



But remember as Don says paying taxes is a good thing. You made a profit. Way to go



Mark

 

[Thomas Beyer]

1/2 of the capital gains is taxable. Is this correct?
yes

Are there any mechanisms that can be used to reduce taxation?
less profits/gains i.e. pay more when buying and take less when selling ?



Are there any breaks available if I re-invest the gains in Real Estate?

none yet in Canada .. only in the US.



Is there any sort of capital gains exemptions that could apply?

none .. unless a farm or personal residence ...



BUT: given that the highest marginal tax rate in Canada is about 40% you end up paying only 20% or so in taxes .. CHEAP .. almost a tax haven !! Consider donating 10% to charity !



Celebrate .. take the family to Maui 1st class .. and repeat with a 2nd, 3rd or 8th property !!

 

[moparcanuck]

If the property is in your personal name, there's very little that could be used to reduce the taxes. You are correct that only 1/2 of the gain is taxable. There are a few capital gains exemptions out there, but they generally don't apply to RE investors (principal residence, farm land, qualified small business shares). As commented, capital gains are quite favorably taxed, so actually that's the kind of income you want, so you're already getting a bit of a tax break (hey, it's 50% off what you would have otherwise owed!). About the only other break you might get isn't to avoid the taxes, but rather to smooth them out over several years, and that's if you were to only received payment over several years. However, I doubt that's the case (a VTB is generally considered as received immediately if you're earning interest on it).



As far as the differences in a corp, again, very little to avoid the taxes, but a few more opportunities to smooth it out over several years, especially if you know in advance you're going to sell. Still going to get the same gain overall though. With our progressive tax system, this might generate some savings due to being in middle tax brackets for several years, rather than a high one for one year, but that's about it.

 

[orei]

Thanks for the great responses!



Access to informed individuals is invaluable...

 

[housingrental]

Details of the sale would make for a good post