In addition to your personal income from employment, any capital gained or lost from investments goes towards your final personal income total and affects your personal income tax return for every tax season. Before starting your personal income tax return for the 2019 year, here’s what you need to know about capital gains tax in Newfoundland and Labrador.
What Are Capital Gains?
Once you begin to earn money and think about your personal finances, the concept of investment typically comes into play. Even if you are a resident of Newfoundland and Labrador and you don’t own any stocks or mutual funds, if you own a real estate property, the concept of capital gains applies to you.
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.
An individual experiences a capital gain when he or she sells, or is considered to have sold, a property or investment for more than the total of its adjusted cost base. This is what is considered as a ‘realized’ capital gain. Before the sale of the investment occurs, it’s typical that an increase in value occurs over time, where capital is gained but, because the profit hasn’t been made or ‘cashed out,’ this is considered an unrealized capital gain. 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.
With this in mind, capital gains taxes in Newfoundland and Labrador will apply to those who receive a gain from a sale or exchange.
Adjusted Cost Base
In most cases of investment, transactions cost money, from commissions to legal fees. These expenses and fees that are incurred contribute to the overall capital gain that is claimable for personal income taxes. Adjusted cost base (ACB) takes all transactional gains and losses into consideration to calculate an accurate total of the actual capital gains that you can then claim as part of your personal income.
Adjusted cost base influences how capital gains taxes are paid in Newfoundland and Labrador. It’s vital to keep record of your adjusted cost base as the provincial government requires that you keep a running total of the adjusted cost base. If you’re unsure how to calculate adjusted cost base visit our blog post here or consult one of our live experts that come with the majority of our TurboTax online tax software solutions.
Capital Gains Tax in Newfoundland and Labrador
As a different source of personal income, capital gains are taxed differently than regular personal income in Newfoundland and Labrador.
50% of your capital gains are taxed at your marginal income tax rate in Newfoundland and Labrador. Calculating this is simple though – add 50% of your net capital gains total to your personal income and follow the Newfoundland and Labrador tax brackets for the final personal income tax owed over the year.
Tax Brackets in Newfoundland and Labrador
When considering personal income and capital gains tax in Newfoundland and Labrador, all you need to do is follow the instructions above and then calculate your tax payable to the provincial government based on the tax brackets below which are specific to Newfoundland and Labrador residents:
- 8.7% on taxable personal income that is $37,591 or less, then
- 14.5% on the remaining portion of income that is more than $37,591 but equal to or less than $75,181, then
- 15.8% on your taxable income that is more than $75,181 but not more than $134,224, plus
- 17.3% on taxable income that is more than $134,224 but not more than $187,913, then
- 18.3% on the portion of your taxable income that is more than $187,913.
If you’ve experienced capital gains over the year of 2019, it’s wise to file your taxes with the guidance of a tax expert.
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 on Taxes in Newfoundland and Labrador
When filing your annual tax return, applying your capital gains means collecting all relevant documents to your income, including your standard employment and all investment records, especially when you sold or exchanged your investments in that year.
To properly claim your capital gains or losses for the year 2019, you are required to fill out the Schedule 3 – Capital Gains (or Losses) in 2019 in addition to Form NL428, 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.
TurboTax has a tax solution for any income and complexity. To see how we can be an expert in your corner at tax time, view our product offerings here.