Is Selling When You Hit $250K in Capital Gains a Smart Move for Your Toronto Real Estate Investment?

Starting June 25, the CRA is changing up how capital gains are taxed and anything over $250,000 in gains will be taxed more. 

So if you’re thinking of selling this year, it’s pretty clear that there’s a benefit to sell before June 25.

But here’s the real question: if you’re not in a rush to sell, should you aim to sell every time you hit around a $250,000 capital gains mark to avoid the higher tax rate above that?

Note: this is not tax advice. Always consult an accountant to get professional tax advice tailored to your unique situation.

Let's dive into two scenarios to see how it plays out.

  • In Scenario A, you buy a property for $1 million and sell it when needed for $1.5 million, making $500,000 in capital gains.

In Scenario B, you buy at $1 million, sell at $1.25 million, then repeat the process, aiming to stay at $250,000 in gains each time to save on taxes:

  • Anything over $250,000 in capital gains will be taxed at 33%, so in scenario B, you end up saving $20,000 in capital gains tax.
  • But here’s the catch: each time you buy and sell, you’re hit with Land Transfer Taxes (around 3.5% in Toronto) and selling fees (let’s say 4.5% for simple math). So, in Scenario B, you end up paying 8% more in total fees – $100,000.

When we add it all up, Scenario B leaves you $80,000 lighter in the wallet. So, buying and holding, Scenario A, ends up being a smarter choice.

Crunching the Numbers

You might be wondering, “When would Scenario B actually be a better choice?” 

Well, this would happen when tax savings outweigh your extra transaction fees. When we crunch the math, it turns out it’s never possible. 

So, the bottom line is clear: it’s always smarter to buy and hold until you actually need to sell.

Successful Real Estate Investing In Any Toronto Market

Taking this one step further, with real estate investing, your goal is to maximize your returns while keeping taxes and fees to a minimum.

And the best move to cut out those taxes and fees minimum is to refinance when you want to cash out, which lets you pull out 80% of any gains on the property without incurring these fees and taxes. 

When your gains are big enough, you end up being able to pull out a similar amount as selling, but you still have equity left in the proeprty, so you end up coming on top.

How We Can Help

The concept is simple, but actually knowing how to execute this, finding a property that has high rent, yields and appreciation, and knowing how to optimize your expenses, isn’t that easy. 

But hey, that’s where our team excels. Our Toronto real estate sales brokerage specializes in investment properties in Toronto, and we can help you with all of that plus we will help you to develop a solid roadmap to maximize your success in the long haul. 

Just go to this link below to set up a time to chat with us!

What Toronto Real Estate Investment Is Right For You?​

Check out our complete Toronto real estate investment guide for all the details and real-life examples. If you’re ready to dive in, just book a call with us!