A planned sale happens in a month the plan names. The home is sold at its projected market value that month, and what is left after costs and the mortgage becomes cash in the plan.
The rules
- Selling costs. The default is 5.81% of the price: a 5% commission, 13% HST on the commission, and legal fees.[1] It is an Ontario figure for a typical Toronto sale; commissions are negotiable. Other provinces start from their own, worked on an $800,000 sale from a commonly used commission scale, the sales tax on it and $1,300 of legal fees: British Columbia 3.38%,[2] Alberta 3.84%,[3] Saskatchewan 3.22% (GST and PST both apply to the commission),[4] Manitoba 5.41%,[5] Quebec 5.91% (GST and QST on the commission),[6] Nova Scotia 5.86% (14% HST),[7] New Brunswick 5.91%,[8] Newfoundland and Labrador 5.91%[9] Prince Edward Island 5.91%[10] (15% HST in the last three), and Yukon, the Northwest Territories and Nunavut 5.41% each[11][12][13] (GST only; the 5% commission is from calculator sites, not a survey).
- Mortgage payout. The balance still owed is repaid from the proceeds. Paying a closed mortgage off before its term ends usually costs the higher of 3 months' interest on the balance and the interest rate differential: the balance times the gap between the mortgage's rate and the lender's current rate for the time left, times the years left. At the end of the term there is none.[14] FCAC's example: $200,000 at 6% with three years left, when the lender now charges 4%, costs $12,000, not the $3,000 of three months' interest.
- Capital gain. Proceeds, less selling costs and any penalty, minus the home's cost.[15] The selling costs that count are fixing-up expenses, commissions, legal and survey fees, transfer taxes and advertising, and a prepayment penalty paid to make the sale.[16] The cost is the purchase price plus land transfer tax and other costs of buying, plus capital improvements; maintenance does not count.[17] Half of a taxable gain is income, as in any capital gain.[18]
- Principal residence exemption. The gain is reduced by gain × (1 + years designated) ÷ years owned.[19] The extra year in that formula is what lets a sale year and a purchase year both be covered; it applies only if the owner was resident in Canada in the year of purchase.[20] When every year owned is designated, the whole gain is exempt. A family may designate only one home for any year.[21] A loss on a home that was only lived in is treated as nil, not as a capital loss.[22]
- Rented part. If part of the home was rented, the exemption on that part is at risk. CRA keeps the whole home exempt when the rental is ancillary, there is no structural change, and no capital cost allowance was claimed.[23][24] A self-contained suite is the CRA's own example of a structural change.[25] See the exemption and a suite and change of use. If CCA was claimed, selling for more than the remaining balance returns the excess as income (recapture).[26]
What the engine does
- Sells at the market value in the sale month, using the home's appreciation rate (3.5% by default).[27]
- Takes selling costs at the rate entered (5.81% by default).
- Pays off the mortgage balance from the proceeds. If the price does not cover payout and costs, the shortfall is a bill the month pays from cash and savings, and if it cannot be paid the projection stops.
- Repays any home equity line against the home at closing; see when the plan runs short of cash.
- Designates every year as a principal residence. For a home with a rented suite, the rented share is treated as income property from closing unless you attest that the rental is ancillary (no structural change, no capital cost allowance), so the gain on that share is taxed when the home is sold; attesting keeps the whole gain exempt. See a principal residence with a suite.
- Taxes any gain left over at the 50% inclusion rate, in the year of the sale, at the owner's own marginal rate.
Cashing out on the house page
The house page shows what you would walk away with if you sold in a year you pick. It runs the plan again with the home sold at its market value in December of that year, so the year's rent and costs are whole in both runs. In the plan's own sale year it uses the plan's sale month. The tax on the sale is what the sale's own gain adds to each owner's return that year, with everything else on the return left as it is: rent the sale ends does not count. What you keep is the price, less selling costs, the mortgage paid off and that tax.[28]
All the Numbers estimates the penalty at a sale as the higher of three months' interest and the interest rate differential against the rate it assumes for a renewal, over the months left in the term; with rates assumed flat that is three months' interest. A big bank that compares against its posted rate less the discount you got can charge more, so a figure from your lender, entered under the sale, replaces the estimate.[29] Terms are taken as five years, back to back from the closing (or from the term end you enter for a home you already own), so a sale at the end of a term pays nothing. A home bought in the plan renews once, after its first five years, at the renewal rate you enter; left blank, it keeps its own rate.[30]
A sale is taken to close on the first day of its month. Rent and carrying costs run to the end of the month before. Mortgage interest is paid after the month it is for, so the payout is what is still owed plus that last month's interest, and no regular payment falls in the sale month.[31]
Buying the next home before this one sells
When the next home closes before this one is sold, the plan pays for both homes until the sale, and the down payment cannot come from the sale. A bank can lend the down payment for those months with a bridge loan, once the sale is firm. If you choose one, All the Numbers borrows the next home's down payment, up to what this home is worth less its mortgage today, at the prime rate (4.45%) plus 3%, and repays it with its interest from the sale. It is offered only when the sale closes within 4 months, the longest most banks allow, and it adds one fee of $700 for the lender and the lawyer. The interest is charged for every month from the closing to the sale, both months included, which costs a little more than a loan repaid on the sale day would; it is not deducted from income.[32][33]
Selling or downsizing at retirement
Simulation can run your plan with the home you hold into retirement sold, beside the plan keeping it. The sale is in December of the year the last of you stops working, so that year's rent and costs are whole. After selling, you rent at the rent your plan uses, from the month of the sale, as rent explains. To downsize instead, enter the price of a smaller home in today's dollars: it is bought the next January, paid in full from the sale and your savings with no mortgage, and its price grows to that year at the rate of the home you sold. Its property tax, upkeep, insurance and utilities are taken at the sold home's rates. With no mortgage there is no lender to qualify with, so a home paid for in full is never stopped by the lender's check. Each answer is your whole plan run again, so the tax on the sale, the land transfer tax on the smaller home and everything after are the ordinary rules.[34]
What it deliberately does not
- Capital cost allowance, and the recapture it causes, on a rented portion. The engine can calculate both (see capital cost allowance); All the Numbers never claims CCA, so there is none to recapture.
- Listing discounts, negotiation, time on the market and a gap between sale and purchase.
- Non-resident sellers.