Selling owner built house intended to be lived in --

My question is: Canadian-specific

QUESTION: We purchased a lot that we wanted to build our house on and live in (B).  We put our current house (A) - primary residence on the market but can not sell it at this point.  We can't keep both houses so if the B finishes and we can not sell A then we will have to sell B (not that we want to).  Would there be a capital gains on that house or what are the tax ramifications for that house. 

david ingram replies:

As described, house B, the one you built, will be subject to Capital Gains tax.   You also have to be prepared fro the CRA wanting to tax you as a builder  if you just build and sell.  This will be especially true if you are a builder, carpenter, developer or Realtor who regularly works with the building or renovating or selling of real estate

If questioned, or audited, you will have to prove beyond a doubt that you really intended to move into it.

Builder Harjit Atwal found this out when he built five houses at the same time.  Four houses were the same, with the fifth house quite different.  He said he had built it for himself and which he moved into and lived in as a residence.  He then sold after devastating events in his life.  The judge ruled he was taxable at full rates on the house he moved into even though he and his wife (who worked for the CRA by the way) testified to the fact that they had built it for themselves.

In other words, The building and selling of a house is what builders do as a business and is taxable at straight rates even if the first one.  In addition, if they want to claim it as a personal residence, they better live in it for a long time, not just a couple of years.

You can read more about the difference between capital gains, straight income and tax free by going to  Go the TAX GUIDE in the top left hand box and then click on capital gains.

 This older question will help as well.  I think it is funny that the one person sent me back a link to read that a Realtor had given him.  Of course, it was my own commentary.


My question is: Canadian-specific

If we buy a fixer-upper to renovate and flip without renting it out what are the allowable expenses for deductions?

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, advertising, 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.
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 <>

(Note that this link he sent was my own commentary.)

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 - click on tax guide in the top
left hand corner and then click on the "capital gain" section.


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


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.

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