In this third part of our series on taxes in real estate, we will be covering HST, capital gains tax and income tax. If you are new to our series, please be sure to go back to our previous blogs on land transfer tax and property taxes (Mon Sep 2, 2024 – Part One, Mon Sep 9, 2024 – Part Two).
Learning about the different types of taxes that come with real estate will help you better understand what may appear as hidden fees - but are actually crucial to your purchase!
HST
We could probably write an entire novel on HST and real estate in Ontario, but here are the basic HST facts you should know:
Resale Homes
• HST is NOT payable on resale properties in Ontario
• If a residential property is used partially as commercial, HST would be payable on the percentage that was used as commercial
• HST may be payable on a highly renovated home (but rebates may apply)
• Vacant Land
• HST is not payable on vacant land (personal use only)
Newly Constructed Houses and Condos
• HST applies to new construction homes
• Federal and provincial rebates are available in some cases
• Most builders will factor the HST and the HST rebate into the purchase price of the home, though some will not, so if you’re buying pre-construction, make sure to ask
• To qualify for the rebate from the builder, the home must be the primary residence of the purchaser or one of their immediate blood relatives ? If the purchaser is an investor, they will not qualify for the rebate automatically. They will have to pay the builder the full amount of the HST on closing and can apply for a rebate after signing a one-year lease agreement with a tenant.
Commercial Properties
• HST is payable on commercial properties
REALTOR Commissions and Legal Fees
• All REALTOR commissions are subject to HST
• HST is payable on real estate legal fees
Capital Gains Tax
The good news: you don’t have to pay any capital gains taxes on the increase in value on your principal residence. For the CRA, your principal residence can be a house, condo, cottage, apartment, trailer, mobile home or houseboat.
But if you’re selling an investment property (or one that was partially rented to tenants), you will be subject to paying capital gains tax. Taxes are payable on 50% of the gain in value and are added to your income.
Example: Investment property purchased for $500,000 and sold for $650,000. Increase in value: $150,000. Taxes must be paid on 50% of the gain, or on $75,000 in this example. That means $75,000 would be added to your total income, so if you’re in the highest tax bracket, you’d be paying additional income tax on $75,000.
Income Tax
If you’re in the business of flipping houses, the CRA will want a piece of the action in the form of income tax.
If flipping is your main gig or forms a substantial part of your income, the CRA will consider it active income, and you’ll be taxed at the usual income tax rates.
Next week will be our final installment of the series on tax in real estate. That is where we will cover Toronto Vacant Property Tax, and Non-Resident Taxes.
In the meantime, if you or anyone you know has any questions about this topic, or would like to find out if now is a good time to buy, sell or both in this everchanging market, please give me a call. You can reach me at 905-683-7800.
Thanks for reading today’s BLOG!!!
Brian Kondo
Sales Representative / Team Leader
The Brian Kondo Real Estate Team
Re/Max Hallmark First Group Realty Ltd.
905-683-7800 office
905-426-7484 direct
brian@briankondo.com
www.BrianKondo.com
www.BrianKondoTeam.com
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