A couple has owned a city home worth $600,000 and a cottage worth $400,000 for the same ten years; each property has a $200,000 gain and qualifies as their principal residence for every year. They sell both in the same year and may designate only one property per year. How does the choice of property affect their taxable gain?
Correct Answer
D) It makes no difference, because the gains are equal
The exempt share of a gain under the Income Tax Act s. 40(2) formula depends on the size of the gain and the years designated (one plus years designated, over years owned), not on the property's market value. With equal $200,000 gains and equal years of ownership, designating either property shelters the same amount, so the result is the same whichever one is chosen.
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Previous Question
A couple owned their home for 20 years. For 8 of those years they rented out a self-contained basement apartment, created by renovation and making up 40% of the home, and they claimed capital cost allowance on it. When they sell, how does this affect their principal residence exemption?
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A couple in Ontario sells their city home and their cottage in the same year. Both were ordinarily inhabited by the family every year they were owned, but a family unit can designate only one property as its principal residence for each year. Which approach generally minimizes their total taxable capital gain?