My question is: Canadian-specific
QUESTION: My Grandmother lives in Vancouver but in the 1960's bought a
property at whistler for $130,000 and is now worth over $1,300,000. She is
not sure what will happen with respect to capital gains she will have to pay
if she sells.
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david ingram replies:
Assuming that your grandmother has another house in Vancouver, you have to
look at both of them and decide which one made the most profit to decide
which one should be declared the principal residence.
But then you have another set of rules to play with.
Before the June 17, 1971 budget, there were NO capital gains taxes in
Canada.
Capital gains started on Jan 1, 1972 and at the time, it was thought that a
husband and wife could each own a property and they would be capital gains
tax free.
Then on Nov 12, 1981 (I was in the gallery at the House of Commons when it
happened), Finance Minister Allan McEachern announced that up until that
date any couple who had a cabin and or a house, etc., could claim them tax
free whether they were in single names or joint but from that date on, a
married couple could only have one property.
Therefore the value on Jan 1 1982 is another important value although form
T2091 takes away from the pure dollar figure.
The next news affecting the second property came on May 23, 1985, when
Michael Wilson (wearing new shoes of course) proposed a $500,000 capital
gains exemption for everyone.
It phased in and then phased out down to $100,000 for real estate and the
stock market but left the $500,000 tax free for selling the shares of a
private corporation or the family farm. Then, on Feb 24, 1992, Don
Mazankowski took the $100,000 away for real estate but left it there for the
Stock market.
We had a change of government.
And, on Feb 22, 1994, Paul Martin (wearing new shoes) took away the $100,000
exemption for the stock market but allowed everyone who had not sold to "top
off" their capital gains by filing a form T664. This form allowed them to
pretend they had sold their real estate on Feb 25, 1992 and their stock on
Feb 22, 1994 and report the capital gain on line 127 and deduct the same
amount as a capital gains deduction and thereby, not pay tax on it.
Hopefully, your grandmother did this in 1994. If not, it is too late to do
so now.
You can work the figures a bit by getting the values on the days I have
mentioned, checking the 1994 tax return to see if a T664 was filed and then
taking the values you have figured out and applying them to form T2091.
You can find the forms links below in the old question which follow and
which might help you as well.
------------------------------------------
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
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Every Sunday at 9:00 AM on 600AM in Vancouver, I, david ingram am a
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Those outside of the Lower Mainland will be able to listen on the internet
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Call (604) 280-0600 to have your question answered. BC listeners can also
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Callers to the show and questioners on this board can also attend the
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Disclaimer: This question has been answered without detailed information or
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