Name: CXXXXXXXX
the_email: CXXXXXXXX
My question is: Canadian-specific
QUESTION: My wife and I are in the process of buying a bare (serviced)
waterfront lot in BC's Okanagan, due to close in July. Our objective is to
build our retirement home there, moving from the Lower Mainland in
approximately 7 years.
We're interested in getting your advice on principle residence capital gains
tax avoidance considerations and strategies in advance of starting to
improve the property.
Relevant points are:
- we own our Lower Mainland home outright
- I can retire in 3 years, my wife 4
- youngest child is 15, so 7 or 8 years more at home (Lower Mainland only)
is expected (but who knows for sure)
- we plan to eventually build to lockup, then do a lot of the interior work
ourselves. (I'm concerned about adding value too soon for CCRA principle
residence considerations)
- we would consider suite-ing the Okanagan house, initially to use ourselves
while we still have any Lower Mainland responsibilities & rent out the main
part of the house
- we plan to enjoy the property as soon as the deal closes by putting a
reasonable sized travel trailer on the property
Thanks much.
----------------------------------------------------------
david ingram replies:
NUMBER ONE RULE IS: KEEP EVERY SINGLE RECEIPT FOR EVERYTHING YOU BUY AND
START A DETAILED LEDGER FOR EVERY EXPENSE YOU ENTAIL FROM PHONE CALLS, AND
DELIVERY TO LEGAL, SURVEYS, A LOAD OF GRAVEL, ETC. If the house does turn
out to be taxable, every $1.00 of receipts will save you20 to 25 cents in
income tax.
THEN:
As of November 12, 1981, a married couple and as of
Jan 1, 1993, a common law couple and as of
Jan 1, 1999 a gay couple in a married type relationship
may only have one house that they claim as a principal residence.
However, you do have the option of claiming either the Okanagan OR your
lower mainland property as your principal residence.
As a rule, the decision is driven by "which" property went up the most.
Since land is the part that goes up the most, the type of land and its
location are the governing factors.
We have just finished claiming a Whistler house as the principal residence
and electing to pay tax on the family home in Vancouver. (Whistler went up
$800,000, Vancouver went up $200,000.)
We regularly do the same thing for waterfront houses on Saltspring or the
Sunshine Coast but I have never done one for the Okanagan.
If you do not rent the property out, there is no problem when you move into
it. You will likely just claim the Vancouver house as your tax free
principal residence and elect uder Section 45(3) to defer tax on the
Okanagan property until its final disposition by yourself and / or your
wife.
Another "gunfighter" technique would be to put the Okanagan in your
childrens' names. Section 74.1 says that any rental income or loss would
still be yours but any capital gains would be that of your children. Since
your children are theoretically allowed to possess a principal residence, it
could be that the Vancouver house could be yours and the Okanagan theirs or
you might want to put the Vancouver house in theit name and the Okanagan in
yours.
I do not know of any case where the tax office has attacked this particular
method. I am sending it out with your name stricken to my email newsletter
list and will be interested in seeing what reaction I get.
Do not do any of this without seeking good help. If you do not come to me
first, ask anyone you do talk with to explain sections 74.1, 75.1, 45(2) and
45(3) BEFORE they have a chance to look up the answers.
If they cannot explain the sections without looking them up, do not use
them. You do not want to be the guinea pig an inexperienced advisor is
practicing on.
David Ingram of the CEN-TA Group
US / Canada / Mexico tax and working Visa 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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