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QUESTION:
Good day
My cousin has built some cottages and is ready to sell them. If he sells
them directly it will be business income. But if he sells one to me and then
I sell it, some will be capital gains. What do I have to do to make sure it
stays as capital gains.
Thanks
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david ingram replies:
If you buy the cottage from your cousin to sell immediately or inthe near future any profit you make will also be straight busines income.
The purchase and sale of a piece of real estate is always taxable at straight rates unless:
1. You bought it to live in and it is your only house and you sell it for a good reason like moving into a bigger or smaller house becasue of a change in circumstances or you get transfered to another city or you get a divorce or for any reason but the fact that if you sell it you will make a profit. If you bought it to live in, it is tax free as a principle residence under Section 54(g) of the Canadian Income Tax Act.
2. You buy it to rent out for a long time and are now selling it to change the nature of your investment or because you want to sell the single family house and buy a four-plex or there is divorce or a financial disaster that forces you to sell it. In this case, it is a capital gain and ony one-half of it is taxable.
3. You buy a vacation home, never rent it, use it for a dozen years and now you just are no tusing it anymore or there has been a divorce, etc., etc. In this case, it is a capital gain and only half of it is taxable.
4. You inherited it and it went up in value while you were waioting to sell it. Capital gains - onmly one half is taxable.
5. A house you were cl;early building to live in but had to sell for unforseen reasons - transfer - divorce - business failure, etc. In that case, only half is taxable but you really have to prove that you were building it for yourself and tha tthe sale had to happen. If you were building it and someone happened to come along and offer you more than your ever dreamed of and you sell it to makle that unexpected profit, it would all be taxable.
All others are taxable at straight business rates and would include.
1. A house you bought to flip
2. A house you bought to flip and rented out while you were witing to sell it.
3. A house you built to sell.
You can read about 28 pages I wrote on capital gains and the different situations that give rise to straight income or capital gains by going to www.centa.com,.clicking on Tax Guide and then reading the capital gains section.
Hope this helps.
Remember, we do this for a living. I have specialized in real estate taxation for Canada and the US for some 35 years now.
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
Disclaimer: This question has been answered without detailed information or consultation and is to be regarded only as general comment. Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader & the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent financial, or real estate planner or advisor & appropriately qualified legal practitioner, tax or immigration specialist in connection with personal or business affairs such as at www.centa.com. If you forward this message, this disclaimer must be included."
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This from "ask an income tax and immigration expert" from www.centa.com or www.jurock.com or www.featureweb.com. Canadian David Ingram deals daily with tax returns dealing with expatriate:
multi jurisdictional cross and trans border expatriate problems for the United States, Canada, Mexico, Great Britain, the United Kingdom, Kuwait, Dubai, Saudi Arabia, South Africa, Thailand, Indonesia, Egypt, Antartica, Japan, China, New Zealand, France, Germany, Spain, Italy, Russia, Georgia, Brazil, Peru, Ecuador, Bolivia, Scotland, Ireland, Hawaii, Florida, Montana, Morocco, Israel, Iraq, Iran, India, Pakistan, Afghanistan, Mali, Bangkok, Greenland, Iceland, Cuba, Bahamas, Bermuda, Barbados, St Vincent, Grenada,, Virgin Islands, US, UK, GB, American and Canadian and Mexican and any of the 43 states with state tax returns, etc.
Alaska, Alabama, Arkansas, Arizona, California, Colorado, Connecticut, Deleware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico,New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon. Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, West Virginia, Wisconsin, Wyoming, British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec City, New Brunswick, Prince Edward Island, Nova Scotia, Newfoundland, Yukon and Northwest and Nunavit Territories, Mount Vernon, Eumenclaw, Coos Bay and Dallas Taxman and Tax Guru Your name has been added to our email list because of an enquiry we have received, we may not answer your question but
another similar question will be as we lump them.
You may find more answers at www.centa.com
David Ingram of the CEN-TA REALTY Group
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
(604) 980-0321 - Fax 913-9123 [email protected]
www.centa.com www.david-ingram.com
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