1. What is Capital Gains Tax?

Capital gains tax is a tax on the profit realized from the sale of a non-inventory asset like real estate. In Canada, only 50% of capital gains are included in taxable income (as of current regulations).

2. How Does the Calculator Work?

The calculator uses the capital gains tax formula:

Where:

• \( Sale\ Price \) — Amount received from selling the property
• \( Adjusted\ Cost\ Base \) — Original purchase price plus improvements
• \( Expenses \) — Selling costs like commissions and legal fees
• \( Inclusion\ Rate \) — Portion of gain subject to tax (0.5 in Canada)
• \( Tax\ Rate \) — Your marginal tax rate for capital gains

Explanation: The formula calculates your taxable capital gain by subtracting costs from proceeds, then applies the inclusion rate and your tax rate.

3. Importance of Capital Gains Calculation

Details: Accurate capital gains calculation is essential for tax planning, determining tax liability, and making informed decisions about property sales.

4. Using the Calculator

Tips: Enter all dollar amounts without commas. The inclusion rate is typically 0.5 (50%) in Canada. Use your marginal tax rate for capital gains.

5. Frequently Asked Questions (FAQ)

Q1: What's included in Adjusted Cost Base?
A: Purchase price, legal fees, land transfer taxes, and capital improvements over the years.

Q2: What expenses can I deduct?
A: Real estate commissions, legal fees, advertising costs, and other direct selling expenses.

Q3: Is there a principal residence exemption?
A: Yes, if the property was your principal residence for all years owned, you may qualify for full exemption.

Q4: How does the inclusion rate work?
A: Currently 50% in Canada - only half of your capital gain is taxable.

Q5: When do I pay capital gains tax?
A: The tax is due when you file your annual tax return for the year of sale.