My question is: Canadian-specific
QUESTION: Hi,
If we buy a
fixer-upper to renovate and flip without renting it out what are the allowable
expenses for
deductions?
Thanks
____________________________________________________________________
david ingram replies:
In general anything you spend to do the fixing is a
deduction from the final sale profit. This would include but is not
limited to:
materials, subcontractors, legal, accounting, real
estate commissions, surveyors, appraisals, interest on the mortgage, interest on
a building loan, interest on material loans (maybe because you used a credit
card to buy), truck expenses to get supplies and transport tools, afvertising,
utilities, photography, landscaping, trash removal, dumping fees, building
permits, architects fees, engineering fees, home inspection fees, insurance,
helpers, etc.
Remember that any profit is taxable at straight
income rates on line 135. Flipping or renovating does NOT create capital
gains tax. The following older Questions will explain that a
bit.
______________________________________________________________________
DAVID
A "friend" who is a BC realtor and has the
flipping question presented to her
from time to time recently
attended a seminar that was related to this
subject. As a result she
was able to provide me with some interesting
thoughts to ponder concerning
"intent" and "professional background" when it comes to "flipping houses"
and
tax in Canada. You may possibly be looked at as a Developer all
the
subsequent implications.
Read the full article at <http://tax.centa.com/comment.php?mode=view&cid=8>
----------------------------------------------------------------------------
david
ingram replies:
In Canada, the purchase and sale of any piece of real
estate with or without
renovations is considered a sale and subject to
straight income tax unless:
1. It was bought for and clearly used as your
personal residence and was
intended to be used for an indefinite period of
time which is usually in the
five to ten year range.
2. It was bought
as and used as a recreational property
3. It was bought for the purposes
of earning long term rental income.
In the case number 1, there is no
tax.
In the case of numbers 2 and 3, the sale is treated as a capital
gain and
only fifty per cent of the profit is taxed at your regular tax
rates.
Lots of / many (anyone caught) are taxed full tax rates when they
buy a
house, move in, fix it up and sell it a year or two later and then
do
another one.
Of course, most are NOT caught in these
circumstances.
However, "any" flip is going to be straight income unless
the person can
prove that they bought it to live in and then:
*
married a person with three children and it is not big enough (had to
sell
and bought bigger)
* were transferred to another city (had to
sell to buy in new city)
* lost their job, were injured, etc. and can no
longer afford to move in. In
this case, they would have to show that they had
the finances to have paid
for it when they bought it. (Not only can they not
afford it but they have
moved into their parents' basement
(boomeranged).
* Inherited a house from their parents and do not need it
any more. (are
living in the new house)
You can read more by going to
www.centa.com - click on tax
guide in the top
left hand corner and then click on the "capital gain"
section.
david
This older q & A also gives an idea
My
daughter is closing on a presale Yaletown condominium this summer.
She
is working until Christmas in Alberta. She returns to Vancouver
from Jan to
May and if the job becomes a full time position, then she may
return to
Alberta to live. At the time of presale, February 2004, we
thought that the
suite would be assigned to her and that she would live in
the suite.
I was hoping that she could declare the suite as her permanent
residence
since she is only renting in Alberta and the work is not
permanent. In
May 2007, she could decide to keep or sell
the suite.
What does she need to do in order to qualify the suite as her
permanent
residence?
-----------------------------------------
david ingram
replies:
There is no absolute answer because you can call a toad a frog
all day long
but it is still a toad.
To be a principal residence and
tax free for income tax purposes, the
property must have been bought by her
to live in and she HAS TO move into
it. - No exceptions that I know
of.
You can expect that the CRA will be looking at "every" quick resale
in EVERY
downtown building.
In deciding if it is a capital gain or a
flip, the CRA will be looking at
the suitability of the unit as a residence,
the ability to pay for the unit
and past and even future
performance.
In other words if she claimed this one as a principal
residence and then did
it again a year later, the CRA would have every right
to go back and
reclassify the first one.
david
ingram
---------------------------------------------------------------------------------------------------------------
David Ingram's US / Canada Services
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/ Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada
Real Estate Specialists
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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
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Be ALERT, the world needs more
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David Ingram gives expert income tax &
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 country investments are all handled
with competence & authority.
Phone consultations are $400 for 15 minutes to
50 minutes (professional hour). Please note that GST is added if product remains
in Canada or a phone consultation is in Canada.
This is not intended to be definitive but in
general I am quoting $800 to $2,800 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
$1,600 would be for two people with
income from two countries
$2,800 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 $150.00 up.
With a Rental for $350
A Business for $350 - Rental and business likely
$450
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 $800 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.
Just a guideline not etched in
stone.
This from "ask an income trusts tax 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
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