If you're buying a rental property, you'll have to pay tax on the rental income you earn. You may also have to pay tax on any profit when you sell the property.
Just because you rented the property out does not mean you will not pay income tax on the profit from the sale. Whether you pay income tax or not depends on 4 things.
- Your intention when you purchased.
- Your history of buying and selling.
- You are in the property business or associated to property dealers, developers or builders.
- The bright-line property rule.
Generally any profit you make on the sale of rental properties is not taxable unless:
- when you bought the property you had a firm intention to sell it
- you have a history or buying and selling
- you have sold the property within 5 years (or the applicable bright-line period)
- you are associated to a land dealer developer or builder.
Example: Joe and Gail buy a second property
What happens when there's more than one reason for buying a property?
Joe and Gail own their own home. They buy a second property as a rental. While they hope that in the long-term, the property can be sold for a profit if needed, their reason for buying the property is for rental income. They had not decided to sell the property at the time they bought it.
They do have to pay tax on the rental income. However, any profit from the eventual sale of the property is unlikely to be taxable.
