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Residential Capital Gains Tax

September 10, 2021

Canadians pay a lot of money in taxation, in fact, far, far, more than the English were paying to King John in 1215 that led to a revolt forcing the King to sign the Magna Carta.  It seems with each successive (Canadian) government there is yet another tax being proposed, raised, or replaced. 

The latest tax to be proposed is the dreaded capital gains on residential real estate.  Like all taxes it will start off innocuously enough, perhaps 5-15% of the value of the gain in value of your home.  But is that percentage before or after allowing for an inflationary adjustment?  Undoubtedly once implemented such a tax would be revised from time to time with regular increases.

The effect of such a tax is simply to punish homeowners, and not to curb inflation nor to make housing more affordable to poorer families.  There has been a lot of talk of redistributing “wealth”, yet ironically the threshold for “wealth” appears to remain in the middle class.  Billionaires still get tax breaks from all levels of government including the CRA, and they get grants and subsidies while the rest of us have our tax returns picked apart.

Breaking it Down:

  • You bought your house five years ago for $250,000 and today it is worth $750,000.
  • Your mortgage was $180,000 today it is down to $150,000 – your apparent equity is $600,000.
  • You have had your eye on a property that is selling for $850,000 and you offer has been accepted.
  • The average real estate commission in Canada is 5%, according to CREA – $42,375 plus HST. 

    Then you have to pay legal fees, penalties on the mortgage, land transfer taxes, CMHC Insurance, etc.
  • In total an estimated 10% of the sale price will be spent in the process of selling and buying, leaving you with about $525,000 towards your new home purchase.

    If the government stepped in with a Capital gains tax at 15% of the upside that would take away another $75,000 – reducing your available funds to $450,000.
  • That would mean your debt would increase from $150,000 (the remainder on the original mortgage to $400,000 the amount you would be required to borrow to acquire the new property that is only worth $100,000 more than the one you just sold.

How do you feel about your current debt situation, can we help?  Call: 519646-2222