QUESTION: I purchased my first home on 4.7 acres zoned rr1 in 2003. The property has 2 houses on it both accessible from the west end of the property. There is no other road access at time of purchase. The property is adjacent to ALR lands. An unsolicited offer came from a developer who purchased approx 3 acres next door to us. We agreed to rezone and subdivide approx 3 acres of our property and sell to him. Do we have to pay capital gains on the sale if the following facts were in force when we purchased the property: In order to rezone and subdivide we were told by the district of sechelt that we would have to give up a 15m buffer down the length of our property because of the ALR lands to the north. This alone is almost 1/3 of the total property as we are 50m x approx 370m. As there was no road access to the back of the property, in order to rezone or subdivide we also would have had to bring in the road and services at our expense which would have been considerable (approx 60k at time of purchase) Because the developer approached the district with a comprehensive plan for our lot and the neighbour's lot combined, the buffer between the rezoned R1 and ALR was allowed to pass at 6m instead of 15m. The developer agreed to assume all costs of the road work and servicing making the transaction financially acceptable to us. Essentially, I am wondering if we were de facto required to purchase the entire 4.7 acres (use and enjoyment). To buy less would have resulted in giving up more than 1/3 of the property as per bylaw in effect at time of purchase and road allowances and as well as having to pay a significant amount to bring in road access and services to the back end of the property. Thanks, ------------------------------------------------------------- david ingram replies: Over the years I have claimed as many as 45 acres tax free where the zoning did not allow subdivision period because of the Island Trust or because of percolation tests or because a lakefront was closed to subdivision, or, or, or. For more than 1/2 hectare (1.22 acres) to be free of capital gains tax, the excess land must have been "NECESSARY" FOR THE USE AND ENJOYMENT the property. The "necessary" part refers to a legal bar, not finances. What you are saying is that you could have subdivided the property if you had done certain things required by the Municipality of Sechelt. The fact that it was uneconomical or you considered it too expensive or costly or not worth it to subdivide does not take away the fact that the property "was" subdividable under the rules in existence when you bought the property. In the Lamb Ranch tax case, they spent fifteen years between original enquiry and ultimate subdivision and the CRA taxed them at straight income rates as developers because they had bought the land and made the enquiries right away and then stopped as uneconomical at the time. It seems that you did much the same thing. Strangely enough, your willingness to sell with an unsolicited offer is another key to its being taxable, maybe as straight income, rather than the 1/2 involved with capital gains treatment. If you had been selling off part because you had a medical emergency, were going to take off four years to go back to University, or had the house burn down with no insurance and you needed to rebuild, the sale would be a clear capital gain even though you built a 16 by 24 foot sign and delivered 10,000 flyers offering the property for sale. When you accept an unsolicited offer and you had tried or investigated subdivision in the first place, the CRA can make an argument that you were in the business of subdividing and tax you straight tax. It is unlikely but realize that it could happen. Goto www.centa.com, click on Tax Guide in the top left hand box and then click on "capital gains" and read some of the tax cases therein. -------------------------------------------------- David Ingram's US / Canada Services US / Canada / Mexico tax, Immigration and working Visa Specialists US / Canada Real Estate Specialists My Home office is at: 4466 Prospect Road North Vancouver, BC, CANADA, V7N 3L7 Cell (604) 657-8451 - (604) 980-0321 Fax (604) 980-0325 Calls welcomed from 10 AM to 10 PM 7 days a week Vancouver (LA) time - (please do not fax or phone outside of those hours as this is a home office) email to taxman at centa.com <mailto:taxman at centa.com> www.centa.com <http://www.centa.com/> www.david-ingram.com <http://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. 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