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David,
Just to follow up from our phone conversation today. Two things…
1) The name of the referral that I am sending over to you is
XXXXX XXXXXXXXX. He is American and she is Canadian – not sure if
they are married or not. XXXXXX is a friend of my folks and is
looking for someone to help him get his Canadian immigration
affairs in order. I suggested he review your web site before
calling. (www.centa.com - click on US / CANADIAN taxation)
This was interesting - When you called, I was sitting with a
couple where she was the American and he was the Canadian. He
met his wife and married her in Alaska in 1982. Brought her back
to North Vancouver where they have been living since 1983. Since
then, they have taken over raising her American Grandson. They
just brought him in as a one year old and he is now 14 and going
to school in North Vancouver. They regularly visit relatives in
Bellingham. In other words, they cross the border every couple
of weeks. "nothing" has happened. They did not even know they
were illegal. they came in because the wife has received some
money from a family business in the US and needed a US tax
return done. Of course, she has also required a US and Canadian
return to be done for the last eighteen years but has never filed
a Canadian return because her sister has been doing it for her to
report family business income. SHEESH!
On the other hand, in the last month, I have had a dozen business
guys with substantial businesses on opposite sides of the border
banned form the US for five years for a perception that they are
working illegally and another couple of people who have been kept
out of Canada.
2) Want to make sure that I understand the implications of
selling my Antique Show Car (if this is what I end up doing). The
car has always been treated as a company asset (i.e. 100%
business use and therefore 100% of the R&M costs have been
written off as business expenses over the years that I have owned
the vehicle). You said I would have to charge GST, which I
understand. You also said that the sale of this asset would be
treated the same as how any other capital gain would be treated.
This is where I am a little naive.
-Does this mean that I would only be taxed on the net profit
resulting from the sale of the vehicle?
-Is net profit calculated by deducting just the original purchase
price from final sale price or would I also deduct all of the R&M
costs that have accumulated over the years?
-Does capital cost allowance factor into the equation? (I really
don’t understand the concept of CCA yet, but it will eventually
sink in I’m sure).
-Is the net gain taxed as regular income (i.e. does it have the
potential to bump me up into a higher tax bracket)? Or, are
capital gains taxed separately and/or differently from my regular
income?
Thanks for your soonest response – I need to decide whether it
makes sense for me to sell this vehicle, or not.
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David Ingram replies
DON'T SELL!
First of all, you should keep the vehicle. You just won't find
another vehicle to replace it and if you were to do so and start
fixing it up, the CCRA might decide to tax you at full rates
because you have joined the ranks of auto restorers.
On the other hand, if you do decide to sell:
Any CCA claimed so far would be recaptured. That means that if
you had claimed $2,000 worth of CCA you would have to pay tax at
ordinary rates on that $2,000.
Because you have written off all the expenses of the vehicle as
repairs and maintenance, you have nothing to add to the ACB of
the vehicle. (adjusted cost base).
Therefore, you would have a capital gain on the difference
between what you paid and what you sell it for.
So: as an example
You paid $10,000 and have claimed $3,000 of CCA and you are now
selling it for $30,000
The $3,000 CCA recapture would just be added to the rest of your
income at the top rate for your income.
The $20,000 capital gain would be cut in half and $10,000 would
be added to your income.
So, Your taxable income would be what ever your income is plus
$13,000.
The following is an example of some tax rates for taxpayers in BC
using 2002 rates
Tax Rates for Canadians at different amounts
2002 Pure taxable incomes used with no CPP or EI or other
amounts
Plus New New Tax per
Income Tax 10,000 taxable payable difference centage
20000 2394.40 10,000 30,000 4899.40 2505.00 25.05
10,000
40000 7878.61 10,000 50,000 10993.61 3115.00 31.15
10,000
70000 17687.23 10,000 80,000 21627.97 3940.74 39.4074
10,000
100000 29699.97 10,000 110,000 33980.01 4280.04 42.8004
10,000
150000 51460.01 10,000 160,000 55830.01 4370.00 43.7
In other words, if the profit was a $20,000 capital gain $10,000
would be taxable. If you already had $70,000 of taxable income,
you would be paying $3,940.74 of income tax.
ingram
david ingram - [email protected]
108-100 Park Royal South
West Vancouver, BC, CANADA, V7T 1A2
(604) 913-9133 - (604) 913-9123 www.centa.com
Cell is (604) 657-8451 (10 AM to 10 PM seven days a week)
US / CANADA / MEXICO
Working Visa and Income Tax Specialists
Be ALERT, the world needs more "lerts"
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