claim house or cabin tax free - T2091 -
My wife and I purchased a recreational property 6 years ago and now plan on selling the property. We own a house in the city which is our primary residence, using the recreational property for weekend and summer use. Will we be liable for Capital Gains Tax on the difference between the purchase price and sale price of the recreational property.
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david ingram replies:
You can claim the house or the cottage tax free for any one year by filling in form T2091 -- However, if you use it for the cottage, you will see that the family home becomes taxable for the same years that you claimed the cottage free.
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What usually happens is that you will pick the one that went up the most in the time period and claim that one tax free and be prepared to pay some tax on the other when it is sold.
Of course, if you sell the one Rec property and then buy another, you are extending the situation.
However, we regularly claim the waterfront cabin at Sechelt or the Ski cabin at Whistler as the tax free item because the rec property went up more than the house in town.
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My question is: Canadian-specific
QUESTION: I want to sell my vacation property, which is not my principal residence. It has increased in value three-fold in 10 years and I want to minimize my capital gain tax. I am planning on buying another vacation home soon after.
If I arrange with the buyer, if willing, to hold part of the title and become their lender, can I transfer title as they pay down the principal, declare their interest as income, but spread the capital gain over multiple taxation years? If this plan works, what are the pitfalls, assuming I am willing to take the risk of the buyer's credit?
---------------------------------------------------------------------------david ingram replies:
1. You have the choice of making the vacation home your personal residence and claiming it tax free if you wish. If you choose to do so, the home you live in is now subject to capital gains tax covering the same time period. BUT, you do not need to calculate the tax or pay it now. It only becomes a problem when you sell that home. Even if it has gone up more than the vacation property, a good argument can be made that the deferred taxation is worth taking a future hit on a larger profit. Of course, this depends upon how long, how much and the tax law int he future.
2. you can carry the paper and defer the tax on the vacation home over a five year period. However, this is really only a good idea if you do not need the money to buy the next home. If you do, the non-deductible interest paid on the next house AND having to pay tax on the interest you are receiving will likely exceed any perceived tax saving by spreading the capital gain over five years.
Time to get to work on the spread sheets.
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1. Can you sell your principal residence and then claim your recreational property as principal residence (both Canadian)? If so, what are the capital gains implications if you then sell your recreational property (which is now your principal residence)?
Obviously, you can't go around claiming principal residence and then selling property after property without being noticed.
2. Is there a time frame that you need to inhabit this recreational property to allow for a sale as a principal residence?
3. Is the entire amount of increased value (purchase price to today's worth) sheltered from CG or just the portion from the day you declare the recreational property to be your principal residence?
4. Is there a limit of land size when claiming principal residence? I heard there was a limit of 1 acre of principal residence being sheltered from capital gains unless you can prove the necessity of the remaining land base (i.e. access to the dwelling).
5. What are your rates for service? Counsel for Capital Gains management (recreational and principal residence) so that the heirs aren't left with a tax burden that forces the sale of the recreational property.
Thanks,
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david ingram replies:
1. yes but not for the same time period. See form T2091 to see how the CRA looks after this
http://www.cra-arc.gc.ca/E/pbg/tf/t2091_ind/t2091-ind-04e.pdf
2. no and yes. It can only be designated for the time that you did not designate the other house
3. just the portion you declare.
4. the limit is 1/2 hectare which is 1.22 acres. If the land can NOT be subdivided because of zoning or other laws which require 4 acres for a septic field (as an example), then the whole piece might be allowed. Goto www.centa.com and read the capital gains section in the TAX GUIDE which you will find in the top left hand box for some examples.
5. fees are stated in the following missive.
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SUGGESTED PRICE GUIDELINES - Aug 5,
2008
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) expert US Canada Canadian American Mexican Income Tax service help.
$1,700 would be for two people with income from two countries
Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be from $150 to $600.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc. Note that these returns tend to be informational rather than taxable. In fact, if there are children involved, we usually get refunds of $1,000 per child per year for 3 years. We have done several catch-ups where the client has received as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund.
Email and Faxed information is convenient for the sender but very time consuming and hard to keep track of when they come in multiple files. As of May 1, 2008, we will charge or be charging a surcharge for information that comes in more than two files. It can take us a valuable hour or more to try and put together the file when someone sends 10 emails or 15 attachments, etc. We had one return with over 50 faxes and emails for instance.
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:
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
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) expert US Canada Canadian American Mexican Income Tax service help.
pert US Canada Canadian American
Mexican Income Tax service and
help.
David Ingram gives expert income
tax service & 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 $450 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. ($472.50 with GST for in person or
if you are on the telephone in Canada) expert US Canada Canadian American Mexican Income
Tax service and help.
This is not intended to be definitive but in
general I am quoting $900 to $3,000 for a dual country tax
return.
$900 would be one T4 slip one W2 slip one or two
interest slips and you lived in one country only (but were filing both
countries) - no self employment or rentals or capital gains - you did not move
into or out of the country in this year.
$1,200 would be the same with one rental
$1,300 would be the same with one business no
rental
$1,300 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.
$1,600 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
$1,700 would be for two people with income from two countries
$3,000 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 $200.00 up.
However, if you have a stack of 1099, or T3 or T4A or T5 or K1 reporting forms,
expect to pay an average of $10.00 each with up to $50.00 for a K1 or T5013 or
T5008 or T101 --- Income trusts with amounts in box 42 are an even larger
problem and will be more expensive. - i.e. 20
information slips will be at least $350.00
With a Rental for $400, two or three rentals for
$550 to $700 (i.e. $150 per rental) First year Rental - plus
$250.
A Business for $400 - Rental and business likely
$550 to $700
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 $900 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.
Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be from $150 to $600.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc. Note that these returns tend to be informational rather than taxable. In fact, if there are children involved, we usually get refunds of $1,000 per child per year for 3 years. We have done several catch-ups where the client has received as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund.
Email and Faxed information is convenient for the sender but very time consuming and hard to keep track of when they come in multiple files. As of May 1, 2008, we will charge or be charging a surcharge for information that comes in more than two files. It can take us a valuable hour or more to try and put together the file when someone sends 10 emails or 15 attachments, etc. We had one return with over 50 faxes and emails for instance.
This is a guideline not etched
in stone. If you do your own TDF-90 forms, it
is to your advantage. However, if we put them in the first year, the computer
carries them forward beautifully.
--IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, please be advised that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used or relied upon, and cannot be used or relied upon, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.--
-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 or www.garygauvin.com. If you forward this message, this disclaimer must be included." -
--IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, please be advised that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used or relied upon, and cannot be used or relied upon, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.--
-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 or www.garygauvin.com. If you forward this message, this disclaimer must be included." -
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