Federal Budget 2015 offers a break on real estate investment gains by donating to charity
The federal government is going to make it a little easier to avoid taxes on real estate investment gains — as long as you give the money to charity.
Tuesday’s budget will let Canadians donate proceeds from their real estate and be exempt from some capital gains tax which is charged on investment property. Principal residences are already exempt from the tax.
To qualify, you have to sell your real estate to an “arm’s length party” — someone not related to you — and then donate the proceeds within 30 days.
If a portion of the proceeds is donated, the exemption from capital gains tax is applied to that portion. The new measure, which would reduce federal revenue by about $265 million over the 2016–17 to 2019–20 period, applies to donations related to properties sold after 2016.
Walter Pela, partner in charge of tax at KPMG, says the change could work well for those who have had large gains on their initial investments.
As an example, someone who bought a condo for $300,000 and then sold it for $500,000, and donated $200,000 to charity would be exempt from capital gains tax on 40% of that $200,000. That person would be paying tax on $120,000 and since capital gains are taxed at a 50% rate, they would only pay tax on the $60,000 taxable portion.
In the case of someone who bought a condo for $100,000 which appreciated to $500,000, they could donate that same $200,000 and get a break on $160,000 of capital gains. They would have a capital gain of $240,000, of which $120,000 would be taxable.
“It’s a welcome change for people have experienced a gain in their real estate markets and are looking to donate funds to a charity or a foundation,” said Pela.