Welcome to present day 2019 and people all over the world are renting part, or all of their homes. However, many have not accounted for the tax sting associated with the income boost. If you own an investment property, you pay capital gains tax (CGT).
If we simplify capital gains tax, it is the tax you pay on capital gain or the increase in the value of an asset or an investment you own. The amount of the capital gain is the difference between what you sold your property/asset or investment for and what you paid for it. You need to report capital gains and losses in your income tax return and pay tax on your capital gain.
However, in most cases, if you sell your private residence there is no capital gains tax. This is where the catch lies – if you have rented your home or used part of your property for income earning activities, part of this gain will be taxable.
It gets even more complicated when you must work out how much of the gain is taxable and how much is covered by the private residence exemption. This can be somewhat costly to those who were not expecting the added tax!