Your personal income can come from a variety of sources, including profit made from investment value increases, in addition to the standard personal income from employment. It’s important to know, however, that capital gains (and losses) are not treated equally in terms of tax rates. When you sit down to do your taxes this year, here’s what you need to know about capital gains tax in Nova Scotia.
Capital Gain in Nova Scotia Explained
Many Nova Scotia residents carry one or a variety of Investments which can include stocks, mutual funds, and real estate holdings. Over the years, the goal is to see a profit made from an investment, which is then referred to as capital gains. Conversely, capital losses occur when an investment loses value and, therefore, the investor loses money.
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 (more on that below) and the expenses incurred to sell the property. In other words, capital gains occur when you make a profit and then profit goes into your ‘pocket.’
Now, investments can increase in value without you reaping the benefits as value continues to increase. The best example of this is real estate. If your property continues appreciates in value over the span of five years, you experience capital gain but, if you haven’t sold the property, the capital gains have not been ‘realized.’ Capital gains can be realized or unrealized.
However, if the value of a real estate property increases and the owner decides to sell the property and makes a profit between the sale price and original purchase price, this is considered a ‘realized’ capital gain since the capital gains are in the owners ‘pocket.’ If the property has been declared as the primary residence, and qualifies for the primary residence exemption, then there will not be a taxable capital gain on that qualifying portion.
Adjusted Cost Base
With buying and selling, expenses and fees can occur that affect the overall capital gains total. Adjusted cost base is the concept that takes all transactional gains and losses into consideration to calculate an accurate total of the actual capital gains.
Adjusted cost base influences how capital gains taxes are paid in Nova Scotia. Adjusted cost base (ACB) is the cost of a property (or other investment) plus any expenses to acquire it, such as commissions and legal fees. It’s vital to keep a record of your adjusted cost base as the provincial government requires that you keep a running total of the adjusted cost base.
For information on how to calculate your Adjusted Cost Base, visit our blog post here.
Capital Gains Tax in Nova Scotia
Even though capital gains are considered a source of income, capital gains are taxed differently from employment income, for example.
Quite simply, 50 % of your capital gains are taxed the marginal income tax rate in Nova Scotia. To calculate what you will be taxed between your personal income and your capital gains, simply add 50% of your capital gains total to your personal income and follow the standard Nova Scotia tax brackets for the final number.
Tax Brackets in Nova Scotia
Tax brackets vary from province to province. Nova Scotia’s provincial tax brackets for its residents are the following:
- 8.79% on the portion of your taxable income that is $29,590 or less, plus
- 14.95% on the portion of your taxable income that is more than $29,590 but not more than $59,180, plus
- 16.67% on the portion of your taxable income that is more than $59,180 but not more than $93,000, plus
- 17.5% on the portion of your taxable income that is more than $93,000 but not more than $150,000, plus
- 21% on the portion of your taxable income that is more than $150,000.
Some exemptions exist for capital gains earned from the sale of qualified farm or fishing properties. Read more about the exemption program and requirements here.
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 Nova Scotia
Every Nova Scotia resident has to pay both provincial and federal personal income tax. 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 2022, you are required to fill out the Schedule 3 – Capital Gains (or Losses) in 2022 in addition to Form NS428, which is the general Nova Scotia Tax and Credits 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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