Real Estate Taxation Vs Business

My_question_is: Canadian-specific
Subject:        Real Estate Taxation Vs Business Prioritiship
Expert:         taxman at centa.com
Date:           Sunday May 28, 2006
Time:           02:11 PM -0700
QUESTION:
My husband and I own 4 houses that we currently tax as rental property.  We
are wondering if it would be beneficial for us to begin our own business
(prioritiship) using the real estate investment as our business.
When it came time to sell one of the houses, would it be taxed as a capital
gains or in some other category if we began a business with these houses?
We realize that our tax returns would become more costly as they would be
business instead of just personal and rental property.....
One benefit of beginning a business with these houses would be that we could
write off our medical, extended health coverage that would be available to
us through the Chamber of Commerce....
Thank you for your time and expertise.
------------------------------------------------------------------
david ingram replies:
4 rental houses rented by the year or month are NOT an active business.  If
you incorporated, the corporate tax rate is NOT eligible for the small
business tax rate unless there are five full time employees not related to
the shareholders.
If you started bed and breakfasts or boarding houses, they could b e an
active business at that time.
In either case, if they have been long time rentals an you needed to sell
one, it would or should be treated as a capital gain.
If you go to www.centa.com and click on "Tax Guide" in the top left hand
box, you will find a section titled "Capital Gains".
Read this for an idea about how capital gains work.
Then, if your own house mortgage is not deductible, read the November 2001
newsletter (same top left hand box) and find out how the rentals can make
your own mortgage deductible.
=======================================
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Phone consultations are $400 for 15 minutes to 50 minutes (professional
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This is not intended to be definitive but in general I am quoting $800 to
$2,000 for a dual country tax return.
$800 would be one T4 slip one W2 slip one or two interest slips and you
lived in one country only - no self employment or rentals or capital gains -
you did not move into or out of the country in this year.
$1,000 would be the same with one rental
$1,200 would be the same with one business no rental
$1,200 would be the minimum with a move in or out of the country. These are
complicated because of the back and forth foreign tax credits. - The IRS
says a foreign tax credit takes 1 hour and 53 minutes.
$1,500 would be the minimum with a rental or two in the country you do not
live in or a rental and a business and foreign tax credits  no move in or
out
$2,000 would be all of the above and you moved in and out of the country.
This is just a guideline for US / Canadian returns
We will still prepare Canadian only (lives in Canada, no US connection
period) with a three or four slips and no capital gains, etc. for $125.00
up.
With a Rental for $300
A Business for $300 - Rental and business likely $400
And an American only (lives in the US with no Canadian income or filing
period) with about the same things in the same range with a little bit more
if there is a state return.
Moving in or out of the country or part year earnings in the US will ALWAYS
be $400 and up.
TDF 90-22.1 forms are $25 for the first and $10.00 each after that when part
of a tax return.
8891 forms are generally $50.00 to $100.00 each.
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
Capital gains *sales)  are likely $50.00 for the first and $20.00 each after
that.
Just a guideline not etched in stone.