Capital Gains Tax (CGT) is paid on the increase in the value of any rental property. Rental property includes such properties as shops, offices, apartments, and even rented homes. The gain on a property is taxable only when it sells for more than you paid for it. However, if you owned the property continuously for one year, you may claim it as your capital gain and enjoy benefits on your taxes. You may want to take advantage of the CGT if the amount of investment is small.
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There are many factors that affect the capital gains tax. These include the rental income and expenses, the fair market value of the property at the time of sale and the amount of rent paid. If you have to deduct any expense, the amount deducted should be the actual expense and not the amount realized from the sale. You cannot deduct expenses for improvements you make to the rental property. But these expenses can be claimed if the property is rented out and not used commercially.
Your net income after deducting expenses from your basis for capital gain on the rental property will help you figure your CGT. It is a complex subject matter and many people find it difficult to understand. To simplify matters, it is important to make sure that all expenses are included in your income and that you do not forget any income related to rental property. A good way to learn about the subject is by using the online CGT worksheet provided by the Canadian Revenue Agency (CRA).
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As part of their duty of care to assess your business-related income for the year, the CRA provides a rental property worksheet. This worksheet is designed to help you estimate the capital gain you earn on sales of your rental properties. The first part of the worksheet estimates your expenses related to property rent. This includes utilities, advertising costs, repairs, etc. The second part of the worksheet estimates your expenses related to improvements.
These include the expenses for painting, furniture, carpet, floor covering, cleaning, fencing, and landscaping. The amount of improvement to be done is deducted from the amount of revenue you receive from renting your property. Also, you need to calculate your revenue loss at the end of the year by adding the amount of the improvements you made to your rental property.
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The third section of the worksheet estimates your profits. This is an area where you have to be extremely accurate as the margin for profit is very small here. You are allowed to claim expenses against the capital property tax and write-offs here. You have to know the tax rules and regulations associated with this area.
Finally, there is a section that deals with the depletion of capital assets. In this worksheet, you will find all the credits that you have been granted on your rental property. The amount of the credit is specified in the document that accompanies your capital gains tax certificate. You can also claim interest and rent on these credits that you have already gotten. This is also allowed if you have already sold your property or if you are borrowing money for your rental.
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It is important to keep all these worksheets in order. When you file your annual return with the Capital Gains Tax office, you must have all your records in order and in print. You do not want to submit your worksheets or certificates to the agency with incomplete or wrong information. If you have any changes to make, you must send a note including the new information to the agency. If you intend to sell your rental property, make sure you update your papers as much as possible so that you will not have problems later on.
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