Let’s talk about real estate taxes. When do they apply? How do they affect us and what do we have to keep in mind?

Sales tax

The first thing we have to think about when buying a new construction property is sales tax. Just like when you go to the store and buy a pack of gum, you’re going to have GST and PST added to the transaction. That’s a total of 14.975% that gets tacked on to the purchase price.

If you are within a certain price bracket, there are some reimbursements provided by the government, but typically you’ll end up paying the same sales tax percentage that you’re used to.

Insured mortgage tax

If you purchase the property with less than 20% down, you’re going to have an insured mortgage. On that insurance premium that you’re paying, there is going to be a 9% tax.

Welcome/land transfer tax

This is a percentage of the sale price or the municipal evaluation – whichever is higher – that is basically a sliding scale. As the prices go up, you’re going to be paying more tax on the property.

Recurring taxes post-purchase

Once you’re the owner of the property, you’re going to have two recurring taxes every year: municipal tax and school tax. Generally speaking, you pay them twice a year, so half of the total amount in two installments.

Income tax for investment properties

If you have an investment property or are earning revenue from your property, you’re also going to be exposed to income tax. You are going to have to declare that income every single year.

You’re going to have some deductions available to you including certain taxes, the interest that you’re paying on the property, any improvements that you made, things of that nature. After that, a percentage of your income is going to be taxed based on the revenue that you receive from the property. 

Then, if you sell an investment property that is not your principal residence, you’re going to be exposed to capital gains tax. This is calculated based on how much you paid for the property, plus any capital improvements and any other acquisition costs that you had related to the property.

They’re going to ask you to subtract one from the other, and on that amount, 50% of it is currently eligible to be added to your tax bracket.

So if you are in the highest bracket, we usually assume you’re going to pay about 25% tax, because you are taxed at about 53% and you’re only exposed to 50% of the gains.

Know your exposure

Taxes can be tricky – and while we’re not a team of accountants, we certainly have lots of experience dealing with property transactions and the nitty-gritty that comes with it. Have more questions about taxes? Reach out, we’ll be happy to help!

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