If you are thinking about downsizing and selling your current property, you are likely wondering what taxes are associated with the upcoming sale. We are here to answer all of your questions—but first, make sure you’ve covered all your bases with our handy Home Sellers Checklist, and don’t hesitate to reach out to West Haven Group for all of your listing needs.
Now, let’s focus on the question at hand – do you have to pay tax when you sell your house? This isn’t a simple yes or no answer but we will help break it down.
Let’s start with the concept of Capital Gains
As we outlined in our blog, Capital Gains in Vancouver- How to Reduce Your Taxable Income, a common misconception of capital gains is that it is a tax in and of itself. However, there is no ‘capital gains tax.’ In its most simple form, you incur a ‘capital gain’ when you sell your property, for more than you purchased it for. Conversely, if you sell your property for less, you would incur a capital loss and can use that loss to offset other capital gains or carry it forward to offset capital gains in future years.
So, when do you have to pay tax and how much is it?
Since the capital gain is a form of personal income, you are required to pay tax on it…sometimes.
Whether you have to pay tax on this comes down to your use of the property. Has this property been your principal residence for every year that you’ve owned it? If so, then you are exempt from paying taxes on any gain from the sale. However, it is crucial that you still report the sale of your property on your income tax and benefit return in order for the CRA to recognize the principal residence exemption.
If your property was not your principal residence for the entirety of ownership, then you have to report the part of the capital gain for these years. This is why it is important to talk to an accountant and a real estate agent if you are considering buying another property to make sure you have a smart plan in place for your properties to protect yourself and your investments.
If it is an investment property, a rental, or a vacation home then you likely can expect to pay capital gains upon selling if you make a profit—although there are fees and deductions that will affect the gain itself, such as costs associated with buying and selling.
In terms of the actual amount, in Canada, you typically have to include 50% of the capital gains as income on your tax return. Keep in mind though that there are differences based on the provincial and national tax rates, as well as your personal tax bracket due to the taxable portion of your capital gain being added to your annual income—this is not a stand-alone payment.
Other types of tax
For this particular article, we’ve focused purely on the taxes you may have to pay upon selling your home but keep in mind that there are other taxes when it comes to property ownership including:
Property Transfer Tax: When you purchase or gain an interest in a property, you have to pay the transfer tax based on the market value of the property at the date of registration unless you qualify for an exemption.
Annual property taxes: Annual property taxes are paid for each property you own to fund services in your area.
Withholding Taxes: If you are a non-resident selling property in Canada, your lawyer is required to hold in trust 25% of the gross proceeds of the sale for your share of the property, until the issuance of the Certificate of Compliance by the CRA.
While West Haven Group is a team of real estate specialists, please keep in mind we are not tax professionals. For more in-depth details on this, we recommend reading the Government of Canada’s Disposing of your principal residence article and also seeking advice from an accountant. Please reach out to discuss your property needs, we can’t wait to connect.
You only get one chance at a first impression, and nothing could be more true in a competitive real estate market like Vancouver. With new properties available all the time, professional home staging has become a vital part of the home selling process. Not only does it help to reveal the true potential of your home, it can also help to achieve a higher sales price, and shorten your listing time to boot! It does, however, come at a cost, which leaves many people wondering if home staging is worth the investment.
What Is Home Staging?
Although some facets of the real estate industry are out of your control, ensuring that your listed property presents well is crucial to a successful sale. It is possible to do this yourself, however, most people lack the ‘eye for design’ that can truly bring out the potential of your home.
Instead, many sellers opt for the skills of professional home staging companies, and in some cases your agent may also be able to offer these services. Utilising your agent in this process will also ensure that the property is staged correctly to appeal to your target market. For example, a condo that is typically viewed by millennials will be staged differently from a family townhome.
Staging your house usually includes:
Updating the interior paint and colour scheme
Removing clutter and personal possessions
Restyling artworks, shelves and furniture
Making the best use of, or redefining, rooms and spaces. This may include rearranging furniture, adding lighting and mirrors, accentuating views etc…
Creating a neutral canvas so that prospective buyers can easily visualise themselves living there
Typically, home staging will also remove any evidence of pets (including their potential smells), professionally clean floors and carpets, and ensure there is enough lighting to make the home feel large, open and clean.
Can I Stage My Own Home?
Whilst it is possible to stage your own home, it can be difficult to remove personal attachments to the property. In most cases, this acts in detriment to the sale, as your ‘personal touches’ are usually to your own preferences, as opposed to the target market.
When it comes to home staging, you want the property to feel as new and modern as possible. You want the property to have the aesthetic that the target buyers are the most drawn to, and the best way to achieve this is with professional staging services. Professional staging can:
Maximise the perception of value. Great staging should make a home feel like it’s worth as much as it can possibly feel. It will utilise quality, attractive pieces to elevate the property and perception of value.
Mask or distract from downsides to a property. Too little natural light? Great staging would include a lot of lighting. Odd layout? Great staging should create a layout that makes sense to buyers, so they aren’t left questioning where their furniture would go.
Emphasise the best features of the property. Nice view? Additional mirrors strategically placed could make this view even more striking by reflecting it. Quality flooring? Removing bulky furniture can accentuate these features too.
Create that ‘feeling’. Buyers usually need that ‘feeling’ in order to get excited and begin to form an attachment to the property. Effective staging accentuates a home’s best features and brings it to life. When prospective buyers walk through your door it should not only feel like a home, it should feel like an aspirational home. In other words- a home and way of living that the buyer finds appealing.
How Much Does Professional Home Staging Cost in Vancouver?
There are a few variables that can affect the cost of staging your home.
First and foremost is the current condition of the property. Has it been maintained over the years? Is the property relatively modern, or does it need considerable work? Does it just need a coat of paint, or will the property require a full make-over? Is there a large amount of clutter and personal items to be removed?
Second, the size of your property will also affect the cost. Staging a four-bedroom home will often require more work and furniture than a one-bedroom condo, for example. These costs can be reduced if your current furniture is suitable, however for the most effective staging it is often necessary to rent furniture and accent pieces. Depending on the service provider this may be included in a package price, however is something to discuss with your agent or staging company.
Third, you need to factor in storage costs for your current possessions. This may need to include costs associated with pet kennels, and extend to temporary accommodation for yourself as well, to ensure the property stays presentable while it is listed. Allowing the property to be vacant whilst it’s on the market removes any scheduling restrictions, and opens it up to more potential viewings.
When it comes to the actual cost, this could range between a few hundred dollars for a consultation, up to 1% of the listed price, per month. These costs should be considered part of the marketing expense to sell the home, rather than an additional investment.
In our experience, for professional staging services you can expect to pay somewhere in the region of:
1-bed condo: $2,400-$3,000 for month 1, drops by 25-50% for subsequent months
2-bed condo: $3,300-$4,000 for month 1, drops by 25-50% for subsequent months
2,600 sq ft house: $4,500-$6,500 for month 1, drops by 25-50% for subsequent months
4,200 sq ft house: $5,500-$7,500 for month 1, drops by 25-50% for subsequent months
In Vancouver, the seller pays for the cost of home staging. Most agents will include some sort of c onsultation in their listing fees, or can at least help you to understand the process to give you an accurate expectation of the costs to present the property. At the West Haven Group we offer professional staging services, and would be happy to discuss the process and associated costs with you.
So Is Home Staging Worth the Investment?
Whilst home staging is dependant upon the property itself, the statistics do confirm that effective home staging can have a positive impact on the sales price and can shorten the amount of time a property is listed on the market.
Some reports say that “staged homes sell 50 percent faster, and for six to 13 percent more” whilst others have said that as much as “17% additional profit is attributed to a staged home (over a non-staged home) with 95% of staged homes selling in 11 days or less.” Moreover, a recent report from the Real Estate Staging Association looked at more than 1000 homes and found that staged homes spent 73% less time on the market.
It’s easy to see that the quicker your home sells, the fewer costs you will bear when it comes to its listing (holding costs, temporary accommodations, storage, marketing expenses, mortgage payments etc…). Choosing not to use professional home staging services may also result in your listing sitting on the market for longer, which can lead a reduction in the sales price over time. With the evidence pointing to faster sales of staged homes most properties in Vancouver will benefit from professional staging services.
Effective home staging should therefore be considered an investment rather than a cost, especially as it may help to achieve a higher sales price when done properly.
When it comes to whether your property needs to be staged your agent will be the best source of information and advice. If you’re interested in home staging services, listing your property for sale, or would simply like a consultation, reach out and connect with us!
The kids have all left home, you spend a lot of the year travelling and visiting friends, and the maintenance on your property is quickly getting out of hand. Saying goodbye to the family home will never be easy, but with the possible boost to your savings, a more manageable property and access to financial liquidity on the cards we ask the question- should you downsize in retirement?
Why Would I Want to Downsize in Retirement?
It seems obvious, but retirement usually results in a rather large reduction of income for most households. Of course, we all hope to be comfortable enough to maintain our current standards of living, but downsizing can often make our lives more comfortable and manageable as we age.
In saying that, the decision to downsize will depend on your own circumstances, and there are a lot of reasons that people choose to downsize their properties in retirement. They begin with the physical components, such as:
Access to medical care
More appropriate living arrangements as you age (mobility)
Downsizing your property may also reduce or eliminate mortgage stress if you are still paying off your loan when you enter retirement. This capital boost, and the possible capital appreciation on your property, can enable a much more comfortable standard of living, and often creates more time and opportunity to spend on hobbies and with family.
Is Downsizing the Only Option?
Selling your home to move into a smaller one is a great retirement strategy, but it isn’t the only option available to you. Instead, you may choose to:
Sell your property and rent another
Take on tenants yourself (depending your property set up)
Downsize and take on tenants
Downsizing may also put you in a position to purchase an additional property or condo, which can generate an ongoing rental income to supplement your retirement.
Conversely, with the costs of selling and moving taken into account, altering your existing property to account for mobility and care as you age may become a more viable solution.
Are There Any Disadvantages to Downsizing My Property?
There are always pros and con’s when it comes to major financial decisions. When it comes to downsizing in retirement, some of the major considerations include:
The cost of moving
The cost of selling
The potential loss of relationships with friends and family (if you choose to move further away)
You may need to renovate/update your current property in order to sell
If your property is not listed as the primary residence you may need to account for capital gains
It can be difficult to establish yourself in a new community
There can be other costs involved if you choose to move further away from your amenities, such as travel costs and limited access.
It’s also imperative that you downsize to the right property. Not making a big enough leap could lead to more costly adjustments in the future, i.e. you may need to sell and move again. Going too far, however, may compromise your retirement-lifestyle by more than you needed.
Thinking About Downsizing in Vancouver?
Downsizing in retirement has a specific set of challenges that can make it a difficult process. The timing of this decision can also greatly affect it’s viability, whether that is dependant upon the current state of the market, or your personal needs moving forward.
At the West Haven Group, we can help you to downsize your property, and ensure you are making the right decisions to provide for a comfortable retirement.
To find out if now’s a good time to downsize, or for any other information, please reach out and connect with our dedicated team.
In Canada, buying and selling assets- at a profit- is considered a form of additional income. This profit is referred to as capital gains, and, as with any form of income, it can also incur additional tax. Although capital gains are not a tax in and of themselves, they do count as income in most circumstances. Whilst you may incur capital gains on a wide variety of tangible and intangible assets, today we’re looking specifically at real estate, to determine if your capital gain will count as income.
I Just Sold My Property- Does That Trigger a Capital Gain?
A capital gain is triggered when the value of an asset increases compared to what was paid to acquire it. This is also known as a ‘realised’ capital gain, and when it comes to physical property like your house, the rules are no different.
Regardless of when the property was purchased, if it is sold for more than the original purchase amount- it triggers a capital gain.
The good news is that only a portion of that capital gain is considered income. Regardless of where in Canada you live, that portion is 50% of the capital gain (after deducting expenses). The confusion surrounding capital gains is usually surrounding how it is taxed, and how it actually affects your income.
So to simplify it- the actual tax you pay depends upon your other sources of income in the same calendar year that you sell your property. Your total income determines your personal tax rate, and in circumstances where the capital gains count as income, the dollar amount is added to your personal income. It is not taxed separately.
There are, however, a few situations where your capital gain will not be considered income.
How Do I Know If My Capital Gains Count as Income?
There are two primary test cases to determine if your capital gain will be counted as income.
Was the property your primary residence, or designated as such? If yes, the capital gain will not be counted as income, and will, therefore, not affect your taxable income.This is particularly important for people with more than one property, as it may be beneficial to declare the more highly valued property (or whichever property has/stands to make the largest capital gain) as the primary residence.
Did you purchase the property using your Registered Retirement Savings Plan (RRSP)or similar initiative? Any investments made under these schemes are tax-sheltered and the capital gain will not count as income.You will still pay tax on it eventually, but in most circumstances, it will not be until retirement, and then it will be at the marginal tax rate. It also means that any RRSP investments compound at a pre-tax rate, giving your investments (and retirement savings) a boost in the long term.
There are some mitigating factors which may also change the nature of your capital gain, such as whether you inherited the property. For example, if the property that is passed down was a principal residence, it will not trigger a capital gains event, and therefore not be counted as additional income.
On the other hand, if more than one property is passed down, the capital gain (assessed based on the fair market rate at the time of inheritance) will be considered income on each additional property. For strategies to minimise your capital gains, how much is counted as income, or the amount of tax you’ll pay on said gains, please see Capital Gains in Vancouver- How to Reduce Your Taxable Income.
For many of us, the dream of a big family home is enough motivation to get out of bed every morning. But after the family leaves the nest, it’s not uncommon to find yourself with too much space and an ever-increasing list of costs and maintenance. Downsizing in Vancouver can be the perfect solution, giving you back the time and money to enjoy your new home, and it’s location.
Why Downsizing in Vancouver Can Be the Right Move
There are a lot of reasons that people choose to downsize their properties in Vancouver. Being able to reduce your living and maintenance costs and unlocking capital in your property to name a few. But more typically, we see people looking to downsize when their children have left home, or in a move to a different neighbourhood to be closer to amenities and other lifestyle benefits.
Downsizing could also be the right choice for you if you travel a lot for work, or are looking to travel more permanently. Rather than paying expensive utility bills and property taxes for rooms that aren’t being used, moving into a smaller property or condo may free up some much-needed capital, as well.
As the boomer generation continues to exit the workforce, we most often see retirees looking to downsize in Vancouver. Considerations like comfort, the difficulty of living in multi-storey housing as you age, and being closer to family and friends are all reasons to consider downsizing. But other unforeseen events such as relationship breakdowns, employment circumstances, or global pandemics can also become aggravating factors.
Make Downsizing Easy With These 5 Steps
1. Define Your Goals
Before you can downsize, you need to determine the necessities, and which things you are happy to compromise on. Room is a given, but you need to consider things like:
how much room do you actually need to live comfortably?
Do you need a guest room or can you sacrifice it to minimise costs?
Which neighbourhoods would you be happy to live in?
How long do you plan to live there? Will stairs become an issue?
Are you trying to avoid maintenance?
All of these questions and more will help you to make decisions on the type and size of property that suits your needs.
2. Buy or Sell
When it comes to property, the decision to buy or sell first comes down to personal circumstances. There are a number of factors that come into play, such as:
the current state of the market
The specific properties involved. Are they unique? Will they be an ‘easy’ sell?
The risks involved with either option
Flexibility with your time, finances or options
For more information, see our detailed write-up. Using an experienced realtor can help to streamline this process for you, and give you advice specific to your circumstances.
Then it’s time to make some tough decisions.
3. Pack and Sort
Downsizing in Vancouver can mean a much smaller space than you’re used to. You’ll need to decide which pieces of furniture you might donate, which items you consider essential and which ones you do not. In short, what are you taking, and what are you saying goodbye to?
It can be an emotional process, and we suggest starting as early as possible. Some people prefer to start in unemotional rooms, like the laundry or garage, before moving into the main parts of the home.
When you begin to pack, it’s important to consider whether the items you’re keeping serve your plan for the new property and its uses. Does it help you meet your goals? Have they actually been used recently? In many cases, a lot of possessions can be passed down to family or friends, who can enjoy them as much as you did.
4. Call in the Favours
Moving day means all hands on deck. Depending on your circumstances you may be able to rely on friends and family, or paying for a moving company may suit you better. Either way, it can be an emotional and stressful experience, so remember to breathe, and take your time.
Spend time in your new property, arrange and re-arrange. But don’t forget to enjoy all the great things about moving to a new place! Get outdoors and explore, get to know the street names and how to find your way, meet the neighbours. Often it lets you appreciate a neighbourhood while you get to know it, and it’s a great way to find it’s quirks and rhythm.
Thinking About Downsizing in Vancouver?
The process of buying or selling your home is a big task in and of itself. But downsizing has a more specific set of challenges that can make it a difficult process. At the West Haven Group, our dedicated team can assist from start to finish. Whether it be determining your goals or helping you to sell or find your new dream property, we are always here for you.
To find out if now’s a good time to downsize, or for any other information, please reach out and connect!