My question is: US-specific
QUESTION: I am considering purchasing as an investment a recreational
property in Point Roberts Wasington. The property would be held in my
investment company. I plan on holding the property for 3-6 years and then
selling it. My understanding is that if I hold the property for over 18
months I would only pay a U.S. capital gains tax of 20%. Is this correct?
Also, what would my Canadian tax payable be on the sale of this property?
Thanks,
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david ingram replies:
Because you have declared your intention to sell it in 3 to 6 years
(presumably at a profit) and are holding it in your investment company, even
though you have used it as a recreational property, Canada would consider it
an adventure in the nature of trade and tax you at straight income rates.
The IRS would likely want to do the same thing since the buying and selling
of property starts off as a venture in the nature of trade and you have to
prove it was bought for a different purpose than simply selling for a
profit.
I agree, that if you sold it, you would probably get away with capital gains
on the surface but not if it is in an investment company.
I am sure you will get a dozen differences of opinion but I have seen dozens
of people taxed retroactively and do not think you would succeed if it was
looked at by the CRA.
You can go to www.centa.com and click on "TAX Guide" in the top left hand
corner and then click on "Capital Gains" to find ab out 30 pages on how
Canada treats sales of property within a company for tax purposes.
I guess the best way to describe it is to say that you can call a toad a
frog all day long but it is still a toad. In Canada, any property bought
with the intention of resale is taxed at straight income (if caught) even if
used as a residence or cabin or rented in the meantime.
To be a capital gain, the primary reason for the purchase had to be as a
residence, or as a cabin, or as a rental income property.
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