dave@lsuc.UUCP (06/01/87)
A brief description of the tax on capital gains:
Capital gains are gains from the disposition (usually the sale)
of capital property. Most assets you own are capital property.
However, if you're in business (say you make widgets at home
and sell them) or you actively trade assets (say you buy real
estate on spec and "flip" it for a profit), your gains may be
business gains (fully taxed) rather than capital gains.
Capital gains are half-taxed. That is, half of the capital gain
is a "taxable capital gain" and is counted as part of your income
for tax purposes. So the top tax rate on capital gains is therefore
half of the top marginal personal tax rate, or about 25% depending on
the province.
There is also a "lifetime capital gains exemption", which in theory
lasts for your lifetime but may in fact be for the lifetime of the
Conservative government :-). It's for $500,000 of capital gains (half
of which would be tax-free anyway). For 1987, it's only $100,000
(cumulative exemption since 1985), since it's being phased in.
It doesn't become $500,000 until 1990 and beyond.
The exemption applies to all capital gains, from any source.
If you have a large tax-free capital gain, you might still get
hit with the "minimum tax", however, and be required to pay some tax.
Note that gains on principal residences are normally entirely tax-free.
So if you sell your house for a bundle, the gain doesn't affect your
"lifetime capital gains exemption". It's just a "nothing" for tax purposes --
not a gain at all as defined in the Income Tax Act.
David Sherman, Consultant
The Law Society of Upper Canada
Toronto
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