John and Mary are married and own three properties: their principal residence worth $600,000, a cottage they bought for $300,000, and a rental property worth $400,000. They sell the cottage for $450,000 after owning it for 6 years, all while resident in Canada. If they designate it as their principal residence for 4 of those 6 years, what portion of the capital gain is exempt from tax?
Correct Answer
A) $125,000
The capital gain is $450,000 - $300,000 = $150,000. The principal residence exemption shelters (1 + years designated) / years owned of the gain: (4 + 1) / 6 x $150,000 = $125,000 exempt. The remaining $25,000 is a capital gain, one-half of which is taxable.
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In the City of Toronto, what combined land transfer tax rate applies to the portion of a single-family home's price between $400,000 and $2,000,000?
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