Taxes are one of the only things in life that you can always count on. In Canada, and especially Ontario, it seems as though we get taxed on everything, from clothes and snack foods to property taxes and more. Calculating the taxes when selling a house can be particularly confusing. In this post, we’ll answer the question: What taxes do you pay when selling a house in Ontario?
An accurate, unbiased assessment is the foundation of your effective home-selling strategy. Start by booking your complimentary home evaluation with our experts.
Do You Pay Sales Tax on a House?
Is there HST on resale homes in Ontario? This is more of a question for someone looking to purchase a home.
HST primarily comes into effect when buying a new house directly from a builder, although you might qualify for a rebate if you plan to occupy the home as your primary residence.. Once you take possession and move in, it becomes known as a resale home. If you decide to later sell, HST fortunately does not apply.
Resale properties are generally exempt unless they have been substantially renovated enough to be considered new again. Unless you are a builder or developer, you’re not likely to have to pay HST to sell your home. However, HST is only one form of tax. There are others that could come into play when selling.
Do you want a better understanding of some of the finer nuances of real estate? The posts below will help you become an educated seller:
- When Do I Get the Money After Selling My House?
- How to Price Your Home for the Market
- A Home Seller’s Guide to Closing Costs
How Much Tax Do You Pay When You Sell a House in Canada?
“Do I pay tax when I sell my house” is often the first question clients ask us. More often than not, they are referring to capital gains. The answer is “it depends.”
In Canada, we still have the primary residence exemption. If you are selling a house you live in, you won’t owe capital gains as long as all principles apply. You can only designate one property as your primary residence, and you still have to report the sale on your tax return using form T2091.
The rules change if you sell a vacation home, a rental property or even a house that was only your primary residence temporarily. If applicable, you will have to add a portion of any profits from your sale to your income that year.
If you sell your primary residence and move into a cottage or secondary home, the first property is exempt. However, you’ll pay gains on the increase in value of the second house from the time you acquired it until it officially becomes your new primary residence.
How to Calculate Capital Gains Tax on Sale of Property in Ontario
Though there was recent talk about increasing the capital gains threshold, the federal government ultimately decided to keep the rate the same in Canada, at least at the time of this writing.
Here is how the breakdown works when estimating your capital gains.
Imagine you bought an investment property for $500,000. Over the years, it appreciates in value to $600,000, giving you an unrealized gain of $100,000. As long as you keep the property in your name, you don’t pay tax on it, even though technically speaking, your net worth has increased.
If you sell, your capital gains are calculated based on 50% of the increase in value from the time you acquired the asset. With a $100,000 gain, you’ll be taxed on $50,000, which you add to your income for the year.
Do you have more questions about selling a house in Ontario? You’ll find answers in the posts below:
- What Is Bridge Financing and Do I Need It When Selling My House?
- Should I Buy or Sell First?
- How Will Inflation Impact You When Selling Your Home?
Capital Gains Versus Business Income
Capital gains may seem cumbersome, but at least it is not business income. The difference here is that you are taxed on the entire amount, not just 50%.
It’s an important distinction for real estate investors, especially when flipping properties. If you own a home for less than a year before selling it for a profit, the Canada Revenue Agency could deem those profits as business income, meaning the entire amount is taxable.
It’s critical to note that this anti-flipping rule could even apply to your primary residence if you’ve owned it for fewer than 365 days. If in doubt, check with your financial advisor as tax rules can change.
Vacant Unit Tax
Lastly, some homeowners sell specifically to avoid a tax. Several Canadian municipalities, including Hamilton, have implemented a new Vacant Unit Tax. The federal government has also imposed an Underused Housing Tax as of 2022.
Unless an exemption applies, you could be subjected to a tax of 1% of the appraised value of a house that is vacant for six months of the year. If you’re not using a home and have no plans to in the near future, it might be time to consider cashing out of your investment.
Do You Pay Land Transfer Tax When You Sell?
Land transfer taxes are the buyer’s responsibility. You don’t have to pay when selling your home. However, land transfer taxes will apply when buying a new property.
Moving can be an expensive endeavour no matter how you look at it. Your best course of action is to partner with a real estate agent with the skills and experience necessary to fetch the highest possible price for your home. The more successful your sale, the more of a financial cushion you’ll have to empower your next goals.
Do you want a customized strategy for your situation when selling your home? Our top agents in Hamilton & Burlington can help you get the results you need. Reach out today with any questions you have, or call 905-332-9223 to connect with our office.
