Let's break down the scenario and answer step-by-step. --- ## **Scenario Overview** - **Purchase Date:** January 2017 - **Purchase Price (Adjusted Cost Base, ACB):** $1,000,000 - **Intended Use:** Rental property (income-producing) - **Sold Date:** June 2023 - **Sale Price:** $1,500,000 - **Property Use:** Rented out for profit the entire time --- ## **Key Tax Concepts** - **Capital gain:** The profit from the sale of a capital asset, such as real estate. - **Capital gain calculation:** \[ \text{Capital Gain} = \text{Proceeds of Disposition} - \text{Adjusted Cost Base} - \text{Selling Expenses} \] - **Rental Property:** Income earned is reported as rental income; when sold, any gain is generally a capital gain. - **Principal Residence Exemption:** Does **not** apply since the property was not your principal residence. --- ## **Step-by-Step Solution** ### **1. Calculate the Capital Gain** \[ \text{Capital Gain} = \text{Sale Price} - \text{Purchase Price} \] \[ \text{Capital Gain} = \$1,500,000 - \$1,000,000 = \$500,000 \] *Assume there are no selling expenses for simplicity.* --- ### **2. Taxation of the Gain** - In Canada, **50%** of the capital gain is taxable. \[ \text{Taxable Capital Gain} = \$500,000 \times 50\% = \$250,000 \] --- ### **3. Is the scenario correct?** #### **Scenario Statement:** "Taxpayer purchased a condo in January 2017 for $1,000,000 and plans to use it as rental property. Please consider the final value to be $1,500,000 for ease of calculation. The property was rented out for a profit from the time it was purchased until it was sold in June 2023 for $1,500,000. Is the following scenario correct regarding the sale?" - **Correct:** - The gain is a capital gain, not regular income. - The principal residence exemption does **not** apply. - 50% of the gain is taxable. --- ## **Final Answer** **Yes, the scenario is correct.** When a property is used as a rental (income-producing) property and sold for a profit: - The difference between the sale price and purchase price is a **capital gain** ($500,000). - **50%** of the capital gain ($250,000) is **taxable**. - The principal residence exemption does **not** apply. --- ### **Summary Table** | Item | Amount | |-----------------------------|-------------| | Purchase Price (ACB) | $1,000,000 | | Sale Price | $1,500,000 | | Capital Gain | $500,000 | | Taxable Capital Gain (50%) | $250,000 | --- **Therefore, the scenario and calculations about the sale and applicable taxes are correct.**