This is a multi-part message in MIME format.
---------------------- multipart/alternative attachment
David,
=20
Happy Canada Day!
=20
One of my rental properties in Calgary has now sold and I want to make =
sure that I understand the tax implications correctly.
=20
As you know, I've been applying 100% of the rental income to pay down =
non-deductible debt and in turn have been borrowing to cover operating =
expenses (mortgage payments including principle and interest, property =
taxes, management fees, repairs, maintenance, etc).
=20
I read the CCRA Bulletin No IT-533 that you forwarded a couple of weeks =
back but I'm not real clear on the "Disappearing Source Rules" for my =
particular situation.
=20
I'll keep the numbers simple for the purpose of this discussion.
=20
-Purchased property in 1993 for $60,000 (joint title with my wife).
-After deducting the closing costs, I grossed $120,000 on the sale.
-A $50,000 mortgage on the property was discharged which left me with a =
net of $70,000 that was deposited into my personal bank account.
-Since I have been borrowing to cover the rental property expenses over =
the past year, I have also incurred a debt of $20,000 directly related =
to the property, that is still accruing interest charges.
=20
I understand that the interest on this $20,000 loan would be deductible =
as long as I continued to own the income producing rental property. But, =
now that the source asset has "disappeared" due to the sale of the =
property, will the interest on the $20,000 continue to be deductible or =
not?
=20
Does it make a difference as to what my intent is for the $70,000 that I =
just deposited into my personal bank account (ie. applying the money to =
a new investment vs keeping the money to cover personal expenses during =
my transition period between jobs - FYI : I no longer work for The =
XXXXXXXXXXXXX).
=20
Finally, based on the above numbers, what would the amount be for =
capital gains that my wife and I will have to pay tax on?
=20
Thank you in advance for your response.
=20
Regards,
XXXXX
=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=
=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=
=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D
david ingram replies:
The answer is that if you segregate the $20,000 into a money market fund =
or mutual fund or a GIC, the interest will continue to be deductible. =
You should likely phone Fred Snyder at (604) 731-8900 and investigate =
the Manulife Seg Fund alternative to an RRSP. Put $20,000 in, borrow =
another $50,000 and you will have an interesting investment that is not =
touchable by creditors and does not pass by will and the principal is =
guaranteed at the end of 10 years.
If you commingle the funds as it sounds like you have done, you are in =
danger of them suggesting that the money was used for personal purposes.
Another method would be to put the $20,000 in another account that you =
use for your home based business. Your home based business is a real =
one that has generated many thousands of dollars and using that $20,000 =
for the business in the next year would allow for expansion, new =
equipment, more supplies and inventory. =20
You or anyone else can read IT-535 at:
http://www.cra-arc.gc.ca/E/pub/tp/it533/it533-e.html
I think it has done a marvelous job of codifying what the CRA will and =
will not allow.
The Bulletin, in fact, makes interest as a deduction easier to follow.
Assuming the property in Calgary has a $60,000 profit after taxes, the =
taxable portion will be $30,000 which is in turn divided between =
yourself and your spouse and $15,000 each is added to the top of your =
other income at your highest marginal tax rate. As I remember it, Cindy =
would be paying about 24% of this in tax or less than $3,600. You will =
likely pay 33% or $5,000.
In addition, we claimed CCA on the unit. I do not have all the figures =
that were claimed, but in 2002 (the only year I can access from home), =
you claimed $1369 on one an $1569 on the other and I think we claimed in =
2003 as well. I do not know what you claimed in prior years. The CCA =
claimed also had to be recaptured and is tacked on top of your =
respective incomes (likely 24% for your spouse and 33% for you.
Hope this helps. Remember, A good friend will come and bail you out of =
jail...but, a true friend will be sitting next to you saying, =
"Damn...that was fun!"=20
And,=20
Answers to this and other similar questions can be obtained free on Air =
every Sunday morning.
Every Sunday at 9:00 AM on 600AM in Vancouver, Fred Snyder of Cartier =
Partners and I will be hosting an INFOMERCIAL but LIVE talk show called =
"ITS YOUR MONEY"
Those outside of the Lower Mainland will be able to listen on the =
internet at
www.600AM.com=20
Local phone calls to (604) 280-0600 - Long distance calls to =
1-866-778-0600.=20
Old shows are archived at the site.
This from ask an income tax immigration planning and bankruptcy expert =
consultant guru or preparer 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 gambling refunds =
for the United States, Canada, Mexico, Great Britain, the United =
Kingdom, Kuwait, Dubai, Saudi Arabia, South Africa, Thailand, =
Indonesia, Egypt, Antarctica, 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.
income tax wizard wizzard guru advisor advisors experts specialist =
specialists consultants taxmen taxman tax woman planner planning =
preparer of Alaska, Alabama, Arkansas, Arizona,=20
California Denver Colorado, Connecticut, =20
Delaware District of Columbia Miami Florida,=20
Garland Georgia, Honolulu Hawaii, Idaho, Illinois,
Indiana Des Moines Iowa Kansas Kentucky,=20
Louisiana Bangor Maine Maryland =20
Boston, Massachusetts, Michigan, Minnesota, =20
Mississippi, Missouri, Montana, Nebraska, =20
Nevada, New Hampshire, New Jersey,=20
New Mexico,New York, North Carolina, =20
North Dakota, Ohio, Oklahoma, Oregon.=20
Paris, Rome, Sydney, Australia Hilton
Pennsylvania, Rhode Island, Rockwall,=20
South Carolina, South Dakota, Tennessee, =20
Texas, Utah, Vermont, Virginia,=20
West Virginia, Wisconsin, Wyoming,=20
British Columbia, Alberta, Saskatchewan,=20
Manitoba, Ontario, Quebec City,=20
New Brunswick, Prince Edward Island,=20
Nova Scotia, Newfoundland, Yukon and=20
Northwest and Nunavit Territories, =20
Mount Vernon, Eumenclaw, Coos Bay=20
and Dallas Houston Rockwall Garland=20
Texas Taxman and Tax Guru and wizzard=20
wizard - David Ingram's US/Canada Services
US/Canada/Mexico Tax Immigration & working Visa Specialists
US / Canada Real Estate Specialists
4466 Prospect Road
North Vancouver, BC, CANADA, V7N 3L7
Calls accepted from 10 AM to 10 PM 7 days a week
Res (604) 980-3578 Cell (604) 657-8451
Bus (604) 980-0321=20
[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."
---------------------- multipart/alternative attachment
An HTML attachment was scrubbed...
URL: http://www.centa.com/CEN-TAPEDE/centapede/attachments/422c7fd3/attachment.htm
---------------------- multipart/alternative attachment--
What's Related