John purchased a rental property for $300,000 and sold it 5 years later for $450,000. What amount is subject to capital gains tax?
Correct Answer
B) $75,000
The capital gain is $150,000 ($450,000 - $300,000). However, only 50% of capital gains are taxable in Canada, so $75,000 would be added to John's income and taxed at his marginal tax rate. Since this was a rental property, it cannot qualify for the principal residence exemption.
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