An investor sells an appreciated rental property and agrees to receive most of the price over several years through a vendor take-back mortgage. Which Income Tax Act mechanism can spread the capital gain over those years?
Correct Answer
B) The capital gains reserve, over at most five years
The capital gains reserve in s. 40(1) of the Income Tax Act lets a seller defer the part of the gain that relates to proceeds payable after the end of the year. The reserve is limited so that at least one-fifth of the gain is included each year, spreading the gain over at most five years (the year of sale and four more).
Why This Is the Correct Answer
Why the Other Options Are Wrong
Deep Analysis of This Real Estate Taxation Question
Background Knowledge for Real Estate Taxation
Real World Application in Real Estate Taxation
Common Mistakes to Avoid on Real Estate Taxation Questions
Key Terms
More Real Estate Taxation Questions
In Alberta, property taxes are primarily used to fund which level of government services?
Does Alberta charge a provincial land transfer tax when purchasing real estate?
In Ontario, who is responsible for paying the land transfer tax when a property is purchased?
A Toronto resident owns two properties: their principal residence worth $800,000 (purchased for $400,000) and a cottage worth $500,000 (purchased for $300,000). If they sell both properties in the same year, what is their total taxable capital gain?
What is the primary purpose of municipal property taxes in Canada?
- → In Ontario, what is the standard Land Transfer Tax rate for a residential property purchase of $400,000?
- → Which of the following best describes when land transfer tax is typically paid?
- → A first-time buyer purchases a $450,000 home in Ottawa, outside the City of Toronto. Which land transfer tax relief can they claim?
- → Which type of real estate transaction is generally exempt from GST/HST in Canada?
- → A first-time home buyer signs an agreement in May 2026 to buy a newly built home in Ontario from a builder for $450,000 before tax, to live in as a primary residence. If all conditions are met, what is the most HST that can be rebated under the federal and Ontario rebates combined?
- → A buyer purchasing a $2 million commercial property in Alberta asks what provincial land transfer tax will be due on closing. What is the correct response?
- → Under the Income Tax Act, what is the principal residence exemption?
- → Sarah bought an investment property 3 years ago for $400,000 and sells it today for $550,000. What amount will be subject to capital gains tax?
- → Under Ontario's Assessment Act, how often does the default schedule call for property to be revalued for assessment purposes?
- → A developer purchases a property for $2,000,000 in Alberta, subdivides it, and sells individual lots. The total sales revenue is $3,500,000, with development costs of $800,000. How will this transaction likely be taxed?
People Also Study
Real Property Law
60 questions
Contracts & Agreements
60 questions
Agency & Professional Ethics
60 questions
Mortgage & Real Estate Finance
60 questions
Related Study Resources
Helpful Resources
Previous Question
An Ontario investor wants to sell an appreciated rental property and buy a larger rental, deferring the capital gain the way US investors do with a section 1031 like-kind exchange. Under Canada's Income Tax Act, what is the position?
Next Question
An investor owns three properties: a principal residence, a cottage used personally 60% of the time and rented 40% of the time, and a pure rental property. For tax planning purposes, how should the cottage be treated?