Do You Have a Basic Understanding of Capital Gains?
You may be thinking that with all the bills that you have to pay and the everyday expenses you face, and the fact that you are an average income earner, that you will never have to be concerned about capital gains.
A lot of people that normally do their own income taxes don’t even give capital gains a thought, and they just assume it’s only high income earners or investors that have to deal with this.
If you happen to possess what the CRA considers as capital property and end up selling it for whatever reason, then you could find yourself in a position of having to pay capital gains. For example, maybe you had some property aside from your principal residence that you invested in years ago, and now because you are having some financial difficulty you have decided to sell it. You know you are going to get quite a bit more than what you paid for it so you are going to make some profit. Well, that profit which is above what you paid for the actual property and any expenses you incurred to sell it, now becomes a sum of money that is classed as a capital gain, and you will have to pay taxes on it.
There are specific instructions that the Canada tax department will supply you with in order to calculate just how much tax you owe for this. A lot of people just assume that this is taxed at the marginal rate.
It can be really frustrating to think that you are selling this type of asset because you require the funds to discover that you are not going to glean as much as you think because you now have to pay taxes on it. There are some ways that you may be able to reduce the applicable tax.
It may be that you have suffered some capital losses from some of your other investments. In this case you may be able to offset the capital gains that you owe against these losses. You will find that if you have suffered a capital loss that you will not be able to claim it against your regular type income, although there may be some exceptions to this for some small business corporations.
Both capital gains and losses can be complex. If you feel that you are going to be in a tax position where you have to deal with this, then you may want to utilize the services of a quality accountant.