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.
--------------------------------------------------
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