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Tax Tips
The principal residence exemption is one of the major tax savings mechanisms available to Canadians. Taxpayers may have more than one principal residence (including domestic and foreign vacation homes), but the exemption is generally only available on one principal residence. It is not always better to claim the exemption on the first property to be sold as a second property may have a greater potential gain that could be sheltered. However, it is human nature to want to avoid paying tax now, even though the savings from using the exemption later on the second property, may be greater. This decision can be more palatable if the full cost (“ACB”) of both properties is captured. Expenses such as re-roofing the property, installing central air conditioning or a new furnace, landscaping and renovations all increase the ACB of a property and reduce the potential capital gain on a sale. Keeping track of these expenses is easy and can result in significant tax savings by reducing the capital gain on sale and by allowing an accurate determination of which property to claim as a principal residence. TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes. |