The improvements you make over the years to a cottage or investment property can save you on taxes when you sell.
Coming changes to the capital-gains inclusion rate have jolted not just wealthy Canadians, but also people with long-held cottages or a second property owned as an investment. Starting June 25, they will have to pay tax on two-thirds of the capital gain above $250,000; half of gains up to that threshold will be taxable. Currently, the 50-per-cent inclusion rate applies to all capital gains.
A capital gain is the selling price minus the purchase cost, acquisition costs and the amount spent on improvements made while you owned the property. This combined amount is called the adjusted cost base.
Tax expert Armando Minicucci recalls an interaction with a client who sold a secondary property and was in a panic about what was seen as a big tax liability.
“I sat down with them and said, okay, you’ve owned this property for however many years – come up with a list of all the capital improvements,” said Mr. Minicucci, a partner in the tax practice at accounting and business advisory company Grant Thornton. “They came up with the list and it significantly reduced the resulting capital gain.”
Mr. Minicucci said the calculation of the adjusted cost base on a property starts with the price paid, including land-transfer tax and legal fees. “From that point on, it’s whatever would be considered a capital improvement to the property from the time that you acquired it to the time that it’s disposed of.”
Improvements are distinct from maintenance and upkeep, which are about keeping the property in its original condition. Mr. Minicucci said improvements upgrade the property, and cited examples such as having a garage or an addition built.
A new roof is an example of how the distinction between maintenance and improvements can be tricky. Mr. Minicucci said merely replacing a roof is just maintenance, but adding a superior-quality, longer-lasting roof could be considered an improvement.
You should have receipts or records of improvements you plan to include in your ACB. But Mr. Minicucci said evidence in a photo may help support the claim that you made capital improvements.
Now, for a quick example of an ACB calculation for someone who bought a cottage many years ago for $300,000 and paid $5,000 in closing costs. Over the years, they added improvements costing $100,000, bringing the adjusted cost base to $405,000. This amount would be subject to the Canada Revenue Agency asking for more details on the improvements made.
The cottage is sold for $800,000, which means the capital gain would be $395,000. Under the new inclusion rate, half the first $250,000 of that amount would be taxed at the owner’s marginal tax rate and two-thirds of the remaining $145,000 would be taxed.
Mr. Minicucci said it’s not uncommon for people to overlook the cost of improvements when calculating the capital gain on the sale, especially in cases where the sale takes place after the death of the owner. But the tax savings can be significant. In the above example, the amount of the capital gain is reduced by $105,000.
You’ll also want to use ACB when calculating the capital gain on the sale of securities such as stocks and funds. Monthly or quarterly statements from investment companies typically provide the book value or book cost for account holdings, which is the same as ACB.
However, Mr. Minicucci cautioned that book values in a investing account statement may not be 100 per cent accurate. “You’ll notice that there are caveats on all those brokerage statements that tell you that they’re not responsible for the calculation of your tax bases,” he said.
Book value on an investment statement represents the cost of your holdings plus transaction costs such as commissions, reinvested dividends and/or distributions such as a return of capital. Mr. Minicucci said financial institutions may in some cases miss the return of capital, and thus show an inaccurate book value.
One way to cross-check your book-value numbers is to use the AdjustedCostBase.ca website. Simple calculations can be done for free, and there’s an upgraded service at $49 a year.
How likely is it that your book value is questioned by CRA? Mr. Minicucci said he’s never seen an ACB on a stock questioned, but he has noticed an overall increase in the CRA scrutiny in recent years and reinforced that it’s the taxpayer’s responsibility to support their ACB calculations.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
