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QUESTION:
I bought a condo in 1991 that I lived in as my principal residence for 5
years. A common-law husband and 2 kids later, we all moved out into a rented
house as the condo market was so low it didn't make sense to sell. We have
rented out the condo in the meantime. Now the market has rebounded and we
are considering selling to buy a house. Is there any way to avoid paying
capital gains? What if I moved back in and it became my principle residence
again? It was my principal residence for 5 years and we don't own any other
property does that diminish the capital gains in anyway? If we were to buy a
house with a suite in it could we roll the gains from the sale of the condo
into the "investment (rental )" portion of the new house thereby deferring
the taxes.
I'm thoroughly confused, any advice would be very much appreciated.
Thank you
JXXXXXXXX
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david ingram replies:
1. Moving back in would trigger a capital gains tax as it is considered a deemed dispostion of a business property. You can elect to defer the tax payable until actual sale by filing an election under section 45(3). It will save nothing.
2. You cannot roll the capital gain into a suite or any other rental property under Canadian Income tax law unless it was expropriated for a highway or school parking lot or some other public purpose.
What you can do is file form 2091 to report your sale. This form will take the number of years you owned it and spread any profit over each of those years. Let's pretend that you sell it this year before Xmas so that you have owned the unit for all of 13 years.
You say you lived in it for 5 years. You are also allowed to rent it out for up to 5 years (4 + 1 under the formula) and 5 and 5 is 10 years.
For ease of mathematics, let us pretend that the apartment went up exaclty $65,000 after real estate commissions, special assessments and other improvements you might have made.
That means that the tax free portion would be 10/13 x's $65,000 or $50,000 leaving $15,000 taxable.
You have to pay tax on 50% of the profit so you would owe tax on $7,500. If you added this to your other income of say $60,000, you would owe about 40% or $3,000.
You will need someone like our office to look after it for you. If I am not available at (604) 980-0321, D'Arcy von Schleinitz, or Gail Ritter would be glad to help you.
David Ingram's US/Canada Services
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
4466 Prospect Road
North Vancouver, BC, CANADA, V7N 3L7
Res (604) 980-3578 Cell (604) 657-8451
(604) 980-0321
New email to [email protected]
www.centa.com www.david-ingram.com
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