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?
Correct Answer
D) Allocate overlapping years to the property with higher gain per year
Because only one property per family can be designated for each year after 1981, the couple should assign each overlapping year to the property that shelters more gain for that year, measured as its total gain divided by the years owned. The exempt share is computed under Income Tax Act s. 40(2)(b) as the gain times (1 + years designated) / years owned, so years are worth most on the property with the higher gain per year.
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Previous Question
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?
Next Question
A couple owns two properties: their principal residence worth $800,000 and a cottage worth $300,000. If they sell the cottage for $450,000, what strategies could minimize their tax liability?