My question is: Canadian-specific
QUESTION: i bought a house in 1986 for 110k. i lived in it until 1993.
when i moved out in 1993 its value was about 250k.
i then rented it out from about 93 till now 2003. its value now is about
350ish.
how does the capital gains tax work? is it 50 percent of 50 percent of the
increase. any good and simple way to avoid all these taxes? like move back
in for a year and delare it a principal res. i am tired of tenants and i
need a rest.
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david ingram replies.
If you move back into the house, you trigger a capital gain immediately.
You have a deemed sale by virtue of "change of use".
Section 45(3) of the Canadian Income tax Act allows you to defer the tax
until you actually sell it.
To calculate the tax you will owe, you need to fill out T2091 and the T2091
worksheet
You can find them both at:
http://www.ccra-adrc.gc.ca/E/pbg/tf/t2091_ind_-ws/t2091_ind-ws-02e.pdf for
the worksheet and
http://www.ccra-adrc.gc.ca/E/pbg/tf/t2091_ind/t2091_ind-02e.pdf for the
actual form
To make it short, you will divide (the number of years you lived in it plus
four extra years (plus one)) by the num,ber of years you owned it altogether
and multiply the result by the profit over all the years. The result is the
tax free portion. subtract it from the total profit and you have the gross
taxable capital gain. Cut that figure in half and put it on line 127 of
your tax return.
When telling you to add four years to the formula above, I assumed that you
did not own another house or condo while you were renting the first out. If
you did and sold it as a principal residence, you cannot use the extra four
years in the formula.
Hope this helps
David Ingram of the CEN-TA Group
US / Canada / Mexico tax and working Visa Specialists
US / CANADA Real Estate Property Tax specialists
108-100 Park Royal South
West Vancouver, BC, CANADA, V7T 1A2
(604) 913-9133 - Fax 913-9123 [email protected]
www.centa.com www.david-ingram.com
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