Capital gains tax strategies change under new tax rules

For most Canadians, the new requirement to report the sale of a principal residence will be nothing more than a compliance exercise—but one shadowed by the threat of unrestricted audits and sizeable penalties. To help you negotiate through the new reporting rules, please see the 8 questions you have about principal residence tax rules. But for families with more than one property as well as real estate investors, this new requirement may introduce a few wrinkles into the more common capital gains strategies used to minimize the amount of tax owed to the CRA.

To help you maximize the capital gains tax strategies under this new reporting requirement, here are eight tips and suggestions.

Tip #2: A change in use is also considered a sale

Even if you haven’t actually put your home up for sale, the CRA will deem it to be sold if you change the use of the property. Take, for example, you decide to buy a new, larger home for your growing family but want to hold onto your current property and rent it out. The CRA considers this a “deemed disposition”—you haven’t actually transferred the ownership to another person, but you have changed the primary use of the property, from your family home to a rental property. As such, the CRA will consider the home sold, for tax purposes, at the current fair market value.

Thing is, there are a number of ways to trigger a deemed disposition. The most common way is to change the use of a property—from a family home to a rental property. Another way to trigger this type of taxable disposition is to gift the property to a third party. Do this and the property is deemed to have been sold at its fair market value, at that time. One final way to trigger a deemed disposition is when the taxpayer ceases to be a resident of Canada, for tax purposes. In all cases, the owed tax can be delayed and deferred until the property is actually sold, but for specific advice always talk to a tax specialist.

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