For many years, you may have only had one source of income, from employment, but once you start thinking about investing your money into other areas such as stocks, mutual funds and real estate holdings, the way you claim and owe personal income tax changes. The money made (or lost) is referred to as capital gains or losses, respectively. Now that it’s tax time, here’s what you need to know in order to properly file your personal income.
What are Capital Gains?
For many people, expanding the number of income sources and investments is a personal finance goal – non-negotiable for some, even. Investments can take the form of stocks, mutual funds and real estate, in addition to others. The most relatable form of investment is an investment in real estate, whether it is your primary residence or secondary property.
When someone decides to invest money into real estate, for example, they purchase the property at a specific amount. Generally, as time goes on, the value of real estate appreciates, or increases, leaving the individual with more value than what they started with. This, of course, is the goal of investing.
This increase (or in some cases, especially stocks, decrease) changes the amount of capital that the person has on a personal income basis. In other words, when a home increases in value, the owner experiences capital gains.
Capital gains can be ‘realized’ or ‘not realized,’ This means that if a home increases in value but the homeowner still owns it, the capital gains are not realized – the profit is not in the individual’s pocket. However, if you do sell the property and make a profit – an increase in capital – you have to pay tax on it at that point unless the property you are selling is your primary residence and qualifies for the primary residence exemption.
During the sale of an investment, whether it be real estate holdings or stock, there are typically fees and commissions associated with it, which takes away from the overall profit made. These transactions, fees and profits all need to be accounted for, which is covered by the concept of an adjusted cost base.
More About Adjusted Cost Base
The adjusted cost base encompasses all transactional gains and losses during investment transactions. Once the adjusted cost base is calculated and recorded, the documentation indicates the total of the actual capital gains (or losses) that an individual can claim as part of their personal income.
Calculating adjusted cost base first means that you keep a record of transactions and every financial component of such. If you would like to learn more about how to calculate your adjusted cost base, visit our blog post here or chat with one of our online tax experts when filing your personal income tax.
Capital Gains Tax in New Brunswick
Capital gains aren’t treated the same as personal income from, for example, employment. Instead, 50% of your capital gains are taxed at your marginal income tax rate for New Brunswick residents. While this sounds complicated, you can easily find out how much tax you owe in total by adding only 50% of your capital gains to your total personal income tax and calculate the tax payable to the provincial government from there.
Tax Brackets in New Brunswick
In order to calculate how much personal income tax you owe, you need to know your personal income as well as the current year’s personal income tax rate for the province of New Brunswick. Tax brackets in New Brunswick are as follows:
- 9.68% on the portion of your taxable income that is up to $42,592, then
- 14.82% on the portion of your taxable income that is more than $42,592 but not more than $85,184, then
- 16.52% on the portion of your taxable income that is more than 85,184, but equal to or less than $138,491, plus
- 17.84% on personal income that is over $138,491 up to $157,778, and finally
- 20.3% on personal income that is over $157,778
Don’t forget though, that there are also Federal tax rates that you must consider when calculating your total taxes on your taxable income. Read our blog on Federal tax rates for more information.
How to Claim Capital Gains Taxes in New Brunswick
Before claiming your personal and capital gains taxes in New Brunswick, collect all documentation related to your income, including documents pertaining to investment and capital gains and losses, and adjusted cost base calculations.
Then, fill out the Schedule 3 – Capital Gains (or Losses) in 2019 in addition to the 5004-C NB428 form, which is the general form used to calculate your personal income taxes.
Remember, you can also reduce your capital gains if you also have capital losses from other investments.
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