Real estate investors often dread paying capital gains. Unlike the stock market, real estate is seen as a long-term investment with larger capital gains. For real estate, capital gains are taxed at your marginal tax rate. Other forms of income like employment, interest and foreign dividends are taxed at twice the tax rate and taxable annually, whereas capital gains for real estate are deferred until the sale of the property. There are exceptions for qualified small business corporation (QSBC) shares and farm properties, which are subject to certain conditions. Losses from other non-registered investments can be used against your capital gains to lower your tax burden. You can even avoid paying capital gains yourself by freezing it and passing it along to the next generation, but eventually it will be triggered, so, how you set up a transfer matter.

Key Takeaways:

• In the year of its sale, all past depreciation, also known as capital cost allowance (CCA), gets “recaptured” and taxed in addition to capital gains tax.
• One good way to mitigate tax on a real estate sale is to defer RRSP contributions or deductions in anticipation of a large income inclusion from the sale of real estate.
• In Canada, there is a capital gains tax exemption for real estate used by a taxpayer to earn income from a business, but rental real estate does not qualify as a “business.”

“One of the biggest deterrents I’ve observed with real estate investors is the dreaded capital gains tax hit.”

Read more: http://www.moneysense.ca/spend/real-estate/selling/capital-gains-tax-real-estate-sales/