Borealis Appraisals Ltd.
Tax Appraisal

Here’s how it works for real estate:

• Capital Gain on Real Estate Sale:
  If you sell a property for more than its original purchase price, the difference is considered a capital gain. For example, if you bought a house for $300,000 and sold it for $400,000, your capital gain would be $100,000.
• Taxation of Capital Gains:
  In Canada, only 50% of your capital gain is taxable. So, in the above example, if you have a $100,000 capital gain, $50,000 of that would be included in your taxable income, and taxed at your marginal tax rate.
• Principal Residence Exemption (PRE):
  If the property you sell is your primary residence and you have lived in it for every year you’ve owned it, you may qualify for the principal residence exemption. This exemption allows you to exclude the capital gain from tax, meaning you don’t have to pay taxes on the gain from the sale of your primary home.
• Capital Gains on Investment Properties:
  If the property is an investment property (such as a rental property or a second home), the capital gain will be taxable, and you will have to include 50% of it in your income when you file taxes.
  …
  After disposing of a property, if the property’s use at any point changed from the owner’s primary residence to an investment property with tenants, the CRA will require the value of the property as of the “change of use” date. This ensures the homeowner is only taxed on the capital gain related to the period the property was used as an investment, rather than the full gain. If the change of use date has already occurred, the appraiser can perform a “retrospective appraisal.” An AIC-designated appraiser can assist in providing a retrospective market value assessment of the real estate assets.
• Reporting:
  In the case of a sale of real estate, you must report the transaction on your tax return, even if the property was your primary residence (unless it qualifies for the full exemption). This includes declaring the sale price and any associated expenses, such as improvements made to the property.

It’s important to understand these rules, as failing to report a capital gain or incorrectly applying the principal residence exemption could result in penalties or additional taxes owed. It is recommended to also consult a tax professional or accountant to ensure compliance with current tax laws.

How is an appraisal for tax reporting purposes completed?

If the appraisal requires a Retrospective Market Value, or if the property has already been sold, an inspection of the property may not be possible. The appraiser will proceed with the appraisal which will contain an Extraordinary Limiting Condition explaining why the inspection was not possible. The appraiser will conduct research about the subject property at the retrospective effective date of the appraisal and may ask questions about any renovations that were done or to provide any photographs of the property. The appraiser will also consult various municipal and assessment sources for information about the property at the retrospective date. The rest of the appraisal is completed as standard.