My question is: Canadian-specific
QUESTION: I have purchased half a dozen pre-construction condos as
investment. They are due for completion gradually during 2008-2009. When I
sell them, how can I make sure profits will be treated as capital gains and
not income? What if I assigned 1-2 of them before completion?
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david ingram replies:
There is no way to make six or even one of them a capital gain unless you
can prove that you bought one to live in and the other five to rent out for
a rental income stream.
Your question shows that was not the case so they are clearly a venture in
trade and any profits will be taxable at full rates as straight business
income.
Make sure you keep track of all your expenses.
Going to www.centa.com and reading the capital gains section in the TAX
GUIDE in the top left hand box will give you a better idea of the difference
between straight income and capital gains.
Also, be advised that the "presumption" that the purchase and sell of real
estate is always straight income unless bought as a residence, a vacation
home or for a long time income stream from rents.
When using this rule, the CRA also looks to see if you had the financial
resources to pay for the units when you bought them. If you did not have the
resources, the presumption is that they are straight income because you
would have HAD TO SELL to complete.
As you will see from reading the chapter on capital gains, there is an
election in section 39 that you can make to have stock market trades treated
as capital but no such election exists for real estate, futures, options or
the trading in penny stocks where the only profit is from buying and selling
at a higher price.
The 39(4) election ONLY APPLIES to dividend paying stocks.
==================================
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