Taxing on Resale of property - capital gain or tax free or straight income - - international non-resident cross border income ta


From:           Paul 
Reply_To:       mrshagz@hotmail.com
My_question_is: Canadian-specific
Subject:        Taxing on Resale of property
Expert:         taxman@centa.com
Date:           Wednesday January 16, 2008
Time:           05:32 AM -0000

QUESTION:

I currently have bought a condo and im doing a full reno.. im goin to use it as my primary residency. If I decide in under a year to sell what kind of tax am i looking at? Stating that I prove that Ive moved for a specific reason lost my job, hate neighbor, etc. 


-------------------------------------------------
david ingram replies:

this old q & a should help.

 

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 with 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
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."
 
Be ALERT,  the world needs more "lerts"
 
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 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

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