My question is: Canadian-specific
QUESTION: I own a (leaky) condo in Mission that I currently rent out.
(Incidentally, CCRA recently advised me that, in general, they allow 80% of
leaky condo repairs as deductions from current income and attribute the rest
to capital improvements). I own no other properties. I rent in Vancouver
where I currently work. Since I own only 1 property, does it qualify as my
principle residence?
Thanks.
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david ingram replies:
If you originally bought the condo as your personal residence and lived in
it, you are allowed to rent it out for 4 + 1 years under section 45(2) of
the tax act and it would be tax free if you have rented it for five years or
less.
If you never lived in it, the property is taxable.
The following old answer may help you:
---------------------------------
Sent: Monday, August 15, 2005 4:20 PM
To: taxman at centa.com
Subject: tax exemption from sale of property
Hello Mr. David Ingram,
I am a mortgage broker with XXXXXXXXXX Financial. I recently came across
an email where you explained how a principal residence could be rented and
then sold without being subject to capital gains taxes.
“
a person is allowed to rent his or her principal residence out for up to
four years without paying tax and for any length of time if the rental is
because they were transferred out of the city
”
If someone purchased a house and lived in it for more than a year, then
moved out and rented out the house, are they exempt from capital gains if
they sell that house within 4 years from the rental start date?
Also, can they claim that their rental property is their principal residence
when they have already purchased and are living in another house?
Also, I would like to meet with you to discuss the Smith Manoeuvre. I have
spoken with a few lenders about the Smith Manoeuvre but they said they only
provide the platform for someone to set up this tax strategy. I would like
to talk with you about the details of this tax savings strategy if you have
time.
Thank you,
XXXXXXXXXXXXXXXXX
----------------------------------------------
david ingram replies:
The answer is as stated with the proviso that the house must have been
purchased as a principal residence. Merely living in it does NOT make it a
principal residence although for all practical purposes it does because
unless they get a tip the CRA rarely ever looks at a house sale.
But if your fellow moved into the house and fixed it up to get it ready to
rent and was living there as a convenience rather than his "principal"
residence, it would not be tax free.
To do the calculation, you must prepare form T2091 available at the CRA
website or click here:
http://www.cra-arc.gc.ca/E/pbg/tf/t2091_ind/t2091-ind-04e.pdf
the T2091 worksheet is at
http://www.cra-arc.gc.ca/E/pbg/tf/t2091_ind_-ws/t2091-ind-ws-04e.pdf
In addition, with the first rental return, the person must make the
following election:
I hereby designate the residence at XXXX any street, to be my principal
residence even though I do not ordinarily inhabit it under section 45(2) of
the income tax act.
In the past, the CRA would usually accept a late election but after
thirty-four years (the law was passed June 17, 1971) the CRA figures that
people should get it right. Strangely enough though, very few accountants
seem to know about it and I have NEVER had a client bring in the election
prepared by another accountant. For years we had it printed on our
proprietary software so that it was there automatically and a subject of
conversation, if not actually used.
However, if I move out of my former principal residence and move into
another house I own whether for the four year period in the same area or any
length of time if I get transferred, I can only claim one or the other as my
principal residence for tax purposes so if I claim the one in Vancouver, i
have o pay tax for the same time period on the one in Toronto or Halifax.
Obviously, one claims the one that went up the most.
If you go to www.centa.com and read the November 2001 b=newsletter, you will
have the original document about making mortgage interest deductible in
Canada. It was originally published in the North Shore News in November
1976 and has been updated every four or five years since and is due for a
new update soon.
If you would like a free look, you can come out to one of the Thursday night
seminars at Fred Snyder's Dundee Wealth Management office. I will not be
there for the next two or three weeks as I am taking my first vacation of
more than a day in 34 months (seriously). I should be back in the saddle as
they say by Sept 9th or so because I have an exam to write for UBC on
September 8th.
Every Thursday Evening, Fred Snyder of Dundee Wealth Management conducts one
of 17 different financial seminars at his office
Time: 7:00 to 9:30 PM
Date: Every Thursday evening
Place 1764 West Seventh
Vancouver (corner of Burrard)
Phone (604) 731-8900 to register
No cost - no obligation
Topics always cover David Ingram's mortgage interest as a deduction
presentation
other topics - getting the mortgage, estate planning, critical care
insurance, income taxation, differences between stocks and bonds, and
usually the most innovative HELOC mortgage offered in Canada from Manulife
Bank presented by Stuart Rodger
------------------------------------------
Answers to this and other similar questions can be obtained free on Air
every Sunday morning.
Every Sunday at 9:00 AM on 600AM in Vancouver, I, david ingram am a
permanent guest on Fred Snyder of Dundee Wealth Managers' LIVE talk show
called "ITS YOUR MONEY"
Those outside of the Lower Mainland will be able to listen on the internet
at
www.600AM.com
Call (604) 280-0600 to have your question answered. BC listeners can also
call 1-866-778-0600.
Callers to the show and questioners on this board can also attend the
Thursday Night seminars on finance and making your Canadian Mortgage
Interest deductible.
David Ingram's US/Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
Home office at:
4466 Prospect Road
North Vancouver, BC, CANADA, V7N 3L7
Cell (604) 657-8451 -
(604) 980-0321 Fax (604) 980-0325
Calls welcomed from 9 AM to 9 PM 7 days a week (please do not fax or phone
outside of those hours as this is a home office)
email to taxman at centa.com
www.centa.com www.david-ingram.com
Disclaimer: This question has been answered without detailed information or
consultation and is to be regarded only as general comment. Nothing in
this message is or should be construed as advice in any particular
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and all non-contractual duties are expressly denied. All readers should
obtain formal advice from a competent and appropriately qualified legal
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