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QUESTION:
We are planning to travel and stay on away from home for up to 2 years on Vancouver Island, if we decide to sell at the end of that time will our house still be considered our primary residence? Also - someone told me that if I've ever used a room at home as an office that I have to pay capital gains on that portion of the house sale, is this true? Question Number Three - I sold my business of 42 yrs, not incorporated, and want to know if I will have to pay capital gains there. I received 100 thousand down and am owed 85. Thanks,
xxxxxxx
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david ingram replies:
1. If the house is empty, it will be tax free if it is the only one
you own. If it is rented, you can make an election to keep it as you r
principal tax free residence for up to 5 years by stating
"I hereby elect to declare the home at 1234 xxxxx street, anywhere, XX
to be my principal residence even though I do not ordinarily inhabit
it. If you are just on vacation or trying out another place, the
election is good for 4+1 years. If you were transferred by your
company to another city, the election is good for as long as you stay
in the transferred employment,
2. Using a room absolutely makes that portion of a house taxable in
the USA. As a consequence, I rarely claim an office in the home on US
tax returns. However, in the Fedel Saccomanno case in Canada, it is
clear that even renting out two thirds as in a triplex does NOT make it
taxable. see *** below..
3. If the business was incorporated, you can claim up to $500,000 of
profit tax free,. If the business was a proprietorship, the sale is
subject to capital gains tax,
If it was a proprietorship and you are kicking yourself for not being
incorporated, do not get too excited. i almost NEVER let a client buy
the business as a corporation because the purchaser gets a lousy tax
break on the purchase. When selling a corporation the purchase price
is usually dropped about as much as the tax saved by the seller so that
the purchaser stays even.
In my experience, about the only time a Canadian does get to sell their
Canadian corporation for the tax free capital gain, is when it is a one
or two person software company selling out to a public company who
wants control of the asset to raise money on the stock exchange. And
then, it is likely a $4,000,000 sale with $500,000 or it being tax free
and insignificant in the whole picture.
In 1986, Fedel Saccomanno won the sale of his home as a tax free capital
gain as his principal residence. He had bought a triplex with two units
rented out, and lived in the third unit with his wife on weekends when
he was not teaching at the University of Waterloo. When he did not get
tenure at Waterloo, and sold the property, DNR tried to tax two-thirds
of the profits. Judge Taylor ruled that the entire triplex was tax
free, giving credence to my claim in my Investment Guide. In the
Investment Guide, I suggest that people with duplexes and triplexes
should claim the whole building tax free in spite of the fact that
Bulletins IT 120R2 and R3 stated that half a duplex and two thirds of a
triplex would be taxable.
>>
>> QUESTION:
>>
>> Hi,
>>
>> Last year, we rented out our condo in Vancouver. The
>> plan then was to have the rent cover our mortgage
>> payments for the 12 months that we would be away. A
>> short term solution.
>>
>> Now, we are planning to be away from BC for a longer
>> period of time (approx. 2 years) and wish to sell the condo
>> in the middle of the year, as we are unable to rent the
>> condo for any longer due to strata council by laws.
>>
>> 1) If we sell the condo when there has been a tenant living
>> in it for 12 months, will we pay capital gains?
>>
>> 2) What are our best options to avoid paying this tax?
>>
>> 3) If capital gains would be owed, for how long would we
>> have to make the unit our principal residence again before
>> we can sell it and not pay CGT?
>>
>> Thank you,
_________________________________________________________________
david ingram replies:
If you filed a section 45(2) election with your first year's rental,
you
can rent the condo out for up to 4 years (plus 1 in the calculation)
without incurring capital gains tax if you have not bought another
residence that you are living in.
See Below:
My question is: Canadian-specific
QUESTION: Dear Mr. Ingram,
I bought a house in the December of year 2000, lived there till the end
of December 2000 (3 weeks) and started to rent it out on January 1,
2001. I filed the election 45(2) to claim the house as my primary
residence for years 2001, 2002, 2003 and will do it for 2004.
I do not claim a depreciation for those years.
I want to sell the house now. Do I need to move in house first in order
to avoid the payment of the capital gain taxes. For how long I have to
stay there to be eligible for not paying the capital gain taxes on sold
house if I need to move in.
Thank you in advance for you help,
----------------------------------------------------------
david ingram replies:
First I am going to
repeat your old question from last July and my answer.
My question is: Canadian-specific
QUESTION: Hi, David!
I would like to know is it possible to use the election under the
section 45(2) again if the old house is sold and the new one is bought.
Can it be used unlimited number of times by the condition that it is
used for each house only once.
Thank you
---------------------------------------------------------------------------
David Ingram replies:
Section 45(2) is
intended to allow people to try something out. This means that if you
move to a rented condo for a couple of years and rent your house out,
you can move back into the house without suffering a capital gains tax
under section 45(2).
Since it was passed on
June 17, 1972, (32 years ago now) I have never seen it used more than
twice by one person.
Does not mean it has
not been used more than twice in thirty years, it just means it is
unlikely.
There is no numeric
restriction but if you are moving in and out of houses, the CRA will
treat you as a trader and tax you at full rates.
----------------------------------------------------------
Now, to answer this
question. Section 45(2) is NOT something you can plan to use. In
other words, your living in the house for three weeks and renting it
out and filing a section 45(2) election does NOT make it tax free if
you bought the house to rent and not to live in as your personal
principal residence.
Your question indicates
to me that you are trying to beat the system and did not buy the first
house to live in and unless you can show the tax office that you moved
every stick of furniture in and really intended to live there, the CRA
will not allow it to be sold tax free.
This year, a new policy
of the CRA is that they wish form T2091 to be filed with every tax
return where a personal house was sold during the year.
If it was your
residence and you genuinely intended to live there and were transferred
of suddenly got married or could not stand your neighbour or lost your
driver's licence or suffered some other disaster that caused you to
"HAVE TO" move suddenly, filing section 45(2) will make it tax free
provided you did not also own another house that you did live in. If
you did own another house that you actually lived in, claiming the
house you have filed the 45(2) election for as tax free, will MAKE THE
HOUSE YOU ACTUALLY LIVED IN TAXABLE.
If you have a genuine
45(2) election, you do not need to move back in. If it is not a
genuine 45(2), moving back in will TRIGGER a tax bill as you move in.
You need a consultation
with someone who knows the rules before you make a mistake. I am
available in person or by phone at a fee of $350.00 minimum for an hour
but not until November now.
As many know, I charge
this for US / Canada tax an immigration advice as well. I am not alone
though.
I have sent two out of
town people to him in the last month where it was obvious to me that
the people needed a lawyer as opposed to a consultant..
If you want a free
answer for a couple of minutes, remember
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 Dundee Wealth Management 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
Local phone calls to
(604) 280-0600 - Long distance calls to 1-866-778-0600.
Old shows are archived
at the site.
***
On April 6. 2008, David
Ingram wrote:
It is very unlikely that blind or unexpected email to me will be
answered. I receive anywhere from 100 to 700 unsolicited emails a day
and usually answer anywhere from 2 to 20 if they are not from existing
clients. Existing clients are advised to put their 'name and PAYING CUSTOMER' in the subject line
and get answered first. I also refuse to be a slave to email and do
not look at it every day and have never ever looked at it when I am out
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However, I regularly search for the words"PAYING
CUSTOMER" and always answer them first if they did not get spammed out.
For the last two weeks, I have just found out that my own email notes
to myself have been spammed out and as an example, as I wrote this on
Dec 25, 2007 since June 16th, my 'spammed out' box has
47,941 unread messages, my deleted box has 16645 I have actually looked
at and deleted and I have actually answered 1234 email questions for
clients and strangers without sending a bill. I have also put aside
847 messages that I am maybe going to try and answer because they look
interesting. -e bankruptcy expert US Canada Canadian American
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Therefore, if an email is not answered in 24 to
48 hours, it is likely lost in space.
You can try and resend it but if important AND YOU TRULY WANT OR NEED
AN ANSWER from 'me', you will have to phone to make an appointment.
Gillian Bryan generally accepts appointment requests for me between
10:30 AM and 4:00 PM Monday to Friday VANCOUVER (Seattle, Portland, Los
Angeles) time at (604) 980-0321. david ingram expert
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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 and the author and
any and all non-contractual duties are expressly denied. All readers
should obtain formal advice from a competent and
appropriately qualified legal practitioner or tax specialist for expert
help, assistance, preparation, or consultation in connection with
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David Ingram
gives expert income tax service & immigration help to non-resident
Americans & Canadians from New York to California to Mexico
family, estate, income trust trusts Cross border, dual citizen - out of
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Phone consultations
are $450 for 15 minutes to 50 minutes (professional hour). Please note
that GST is added if product remains in Canada or is to be returned to
Canada or a phone consultation is in Canada. ($472.50 with GST if in
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Income Tax service and help.
This is not intended to be definitive
but in general I am quoting $900 to $3,000 for a dual country tax
return.
$900 would be one T4 slip one W2 slip
one or two interest slips and you lived in one country only (but were
filing both countries) - no self employment or rentals or capital gains
- you did not move into or out of the country in this year.
$1,200 would be the same with one
rental
$1,300 would be the same with one
business no rental
$1,300 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.
$1,600 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
$1,700 would be for two people with income from two countries
$3,000 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 two or three slips and
no capital gains, etc. for $200.00 up.
With a Rental for $400, two or three
rentals for $550 to $700 (i.e. $150 per rental) First year Rental -
plus $250.
A Business for $400 - Rental and
business likely $550 to $700
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 $900 and up.
TDF 90-22.1 forms are $50 for the
first and $25.00 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.
Catch - up returns for the US where we use the
Canadian return as a guide for seven years at a time will be from $150
to
$600.00 per year depending upon numbers of bank accounts, RRSP's,
existence of rental houses, self employment, etc. Note that these
returns tend to be informational rather than taxable. In fact, if
there are children involved, we usually get refunds of $1,000 per child
per year for 3 years. We have done several catch-ups where the client
has received as much as $6,000 back for an $1,800 bill and one recently
with 6 children is resulting in over $12,000 refund.
This is a
guideline not etched in stone. If you do
your own TDF-90 forms, it is to your advantage. However, if we put them
in the first year, the computer carries them forward beautifully.
This from "ask an income trusts tax service and
immigration expert" from www.centa.com or www.jurock.com or www.featureweb.com. David Ingram deals on a daily basis with expatriate tax
returns with multi jurisdictional cross and trans border expatriate
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