flipping houses - straight income or capital gain -


QUESTION: I bought a lot in 2005 and constructed a house and moved into it in 2006.  I did not have a principle residence prior to this point as I was renting.  I had an offer on my house and sold it last year and did make a profit. 

At the same time I bought another piece of land that I was going to hang on to before building but since I sold this house I started building and have now moved in. And again this is my principal residence.

In the meantime, I again had someone driving around looking at houses and since I was there I let them look around.  Well, they love it! And would really love to buy it. 

My question for you is, I don't know much about the capital gains tax law and wasn't sure if I should take the risk on selling it.  Would I have to pay capital gains, even though it is my principal residence?  The market is so good right now that its hard to stay in one place when someone makes you a deal you can't refuse.

Any advice?

Regards,

Worried & Confused
---------------------------------------------------------------------------
david ingram replies:


Building or renovating a house and selling it ss generally considered a venture in the nature of trade whether you live in it while renovating or not.

Selling it because the price was right is a direct example of a venture in trade and taxable at full rates.  It would be different and could be tax free if you moved in and could not stand the neighbourhood or they changed public transportation or announced they were not building a school and the house did not fit your circumstances but if yuo just sold it for a good price, you can expect that the CRA might look at it. If you do two in a couple of years, you can be sure that the CRA will look at it.  Goto www.centa.com and read the capital gains section in the TAX Guide section in the top left hand box to see what the courts have done in the past and help youo figure out what to do.

 
The following two older answers will help you. If you sell this second house, you are putting yourself right in the line of fire from the CRA to go back and look at the first one.


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 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 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 of town. 

 
However, I regularly search for the words"PAYING CUSTOMER" and always answer them first if they did not get spammed out. As an example, as I write this on June 28th, since June 16th (12 days), my 'spammed out' box has 7,118 unread messages, my deleted box has 2630 I have actually looked at and deleted and I have answerd 63 email questions I have answered for clients and strangers.  I have also put aside 446 messages that I am maybe going to try and answer because they look interesting.

Therefore, if an email is not answered in 24 to 36 hours, it is lost in space.  You can try and resend it but if important, 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'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 9 PM 7 days a week  Vancouver (LA) time -  (please do not fax or phone outside of those hours as this is a home office)
 
 
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 personal or business affairs such as at www.centa.com. If you forward this message, this disclaimer must be included."
 
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 is to be returned to 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 jurisdictional cross and trans border expatriate problems  for the United States, Canada, Mexico, Great Britain, United Kingdom, Kuwait, Dubai, Saudi Arabia, Thailand, Indonesia, Japan, China, New Zealand, France, Germany, Spain, Italy, Russia, Georgia, Brazil, Peru, Ecuador, Bolivia, Scotland, Ireland, Hawaii, Florida, Montana, Morocco, Israel, Iraq, Iran, India, Pakistan, Afghanistan, Mali, Bangkok, Greenland, Iceland, Cuba, Bahamas, Bermuda, Barbados, St Vincent, Grenada,, Virgin Islands, US, UK, GB, and any of the 43 states with state tax returns, etc. Rockwall, Dallas, San Antonio Houston, Denmark, Finland, Sweden Norway Bulgaria Croatia Income Tax and Immigration Tips, Income Tax  Immigration Wizard Antarctica Rwanda Guru  Consultant Specialist Section 216(4) 216(1) NR6 NR-6 NR 6 Non-Resident Real Estate tax specialist expert preparer expatriate anti money laundering money seasoning FINTRAC E677 E667 105 106 TDF-90 Reporting $10,000 cross border transactions Grand Cayman Aruba Zimbabwe South Africa Namibia help USA US Income Tax Convention

David Ingram expert income tax and immigration help and preparation of US Canada Mexico non-resident and cross border returns with rental dividend wages self-employed and royalty foreign tax credits family estate trust trusts income tax convention treaty

New York, Boston, Sacramento, Minneapolis, Salem, Wheeling, Philadelphia, Pittsburgh, Atlanta, Pensacola, Miami, St Petersburg, Naples, Fort Myers, Cape Coral, Orlando, Atlanta, Arlington, Washington, Hudson, Green Bay, Minot, Portland, Seattle, St John, St John's, Fredericton, Quebec, Moncton, Truro, Atlanta, Charleston, San Francisco, Los Angeles, San Diego, Sacramento, Taos, Grand Canyon, Reno, Las Vegas, Phoenix, Sun City, Tulsa, Monteray, Carmel, Morgantown, Bemidji, Sandpointe, Pocatello, Bellingham, Custer, Grand Forks, Lead, Rapid City, Mitchell, Kansas City, Lawrence, Houston, Albany, Framingham, Cambridge, London, Paris, Prince George, Prince Rupert, Whitehorse, Anchorage, Fairbanks, Frankfurt, The Hague, Lisbon, Madrid, Atlanta, Myrtle Beach, Key West, Cape Coral, Fort Meyers,   Berlin, Hamburg,  Warsaw, Auckland, Wellington, Honolulu, Maui, Kuwait, Molokai, Beijing, Shanghai, Tokyo, Manilla, Kent, Winnipeg, Saskatoon, Regina, Red Deer, Olds, Medicine Hat, Lethbridge, Moose Jaw, Brandon, Portage La Prairie, Davidson, Craik, Edmonton, Calgary, Victoria, Vancouver, Burnaby, Surrey, Edinburgh, Dublin, Belfast, Glasgow, Copenhagen, Oslo, Munich, Sydney, Nanaimo, Brisbane, Melbourne, Darwin, Perth, Athens, Rome, Berne, Zurich, Kyoto, Nanking, Rio De Janeiro, Brasilia, Colombo, Buenos Aries, Squamish, Churchill, Lima, Santiago, Abbotsford, Cologne, Yorkshire, Hope, Penticton, Kelowna, Vernon, Fort MacLeod, Deer Lodge, Springfield, St Louis, Centralia, Bradford, Stratford on Avon, Niagara Falls, Atlin, Fort Nelson, Fort St James, Red Deer, Drumheller, Fortune, Red Bank, Marystown, Cape Spears, Truro, Charlottetown, Summerside, Niagara Falls, income trust, Income Tax Treaty Convention
 
international non-resident cross border expert income tax & immigration help estate family trust assistance expert preparation & immigration consultant david ingram, income trusts experts on rentals mutual funds RRSP RESP IRA 401(K) & divorce preparer preparers consultants Income Tax Convention Treaty
  
Be ALERT,  the world needs more "lerts"

 


No virus found in this incoming message.
Checked by AVG Free Edition.
Version: 7.5.476 / Virus Database: 269.10.1/889 - Release Date: 06/07/2007 8:00 PM

Trackback

Trackback URL for this entry: http://www.centa.com/trackback.php/CanWeekofMon20070702000273.html

No trackback comments for this entry.

0 comments