Whistler Condo - T664 1994 deemed disposition - from

My question is: Canadian-specific
QUESTION: Could you please give me a simple formula for calculating  capital
gains on a Whistler condo used only for recreational purposes.  It
was purchased in the early 1980's for a nominal amount and had a valuation
by a Whistler realtor in the mid 1990's of $120K. We believe that the
vlauation grand fathered the capital gains to $120K versus the original
purchase price.  The current value is estimated at $300K.
If we sold it  would we pay 50% in capital gains on this property over and
above the $120K valuation amount?
 Thank you for your assistance.
-----------------------------------------------------
david ingram replies:
Once upon a time in Canada, one could earn up to $100,000 in tax free
capital gains on anything.
On Feb 25, 1992, the exemption was taken away from Real Estate and that day
became a new valuation day.
On Feb 22, 1994, the exemption was taken away from everything but the family
farm or a small Qualified Canadian Controlled Private Corporation.
AND, a deemed disposition of all assets was allowed for one to claim any
accrued capital gains up until Feb 22, 1994.
A special form was designed.  The form was called a T664 and filing it meant
that you could gross up a property or a stock portfolio for up to $100,000.
However, there was a little problem in the calculation for real estate
because the valuation day that had to be used on the T664 was Feb 22, 1994
but as you remember from four lines above, the twenty-four months from Feb
25, 1992 to Feb 22, 1994 were not eligible for the tax free status.
So the T664 had the effect of allowing you to declare a new value and exempt
up to $100,000 from capital gains tax but you had to declare (but still
defer) the taxable part from Feb 1992 to Feb 1994.
As an example, I am going to pretend that you  bought the property on Feb 22
1984 for $20,000 and it was worth $120,000 on Feb 22, 1994.  Conveniently,
in this example, you owned the property for 120 months and made exactly
$100,000 which works out to $833.33 per month.
On the T664, your new value would be $120,000 but $20,000 (24 x's
$833.33/month) would not be tax free.  Your NEW ACB (adjusted cost base)
value for the purposes of a sale now would be $100,000 even though you  had
declared the value as $120,000.
I am explaining this in this detail because literally 19 out of 20 people
will try and use the $120,000 figure instead of the $100,000 figure in the
above example and if it is going on Ozzie's Site, it has to be perfect.
You have to look at form T664 for your 1994 tax return to get the  proper
figures.
In my example, if I am right in my interpretation of your question and the
ACB is actually $100,000 for this purpose, and you are now going to sell the
unit for $300,000, there would be a $200,000 Capital gain.
In 1994, 75% of a capital gain was taxable and the maximum tax rate was 54%
so the maximum tax on a  $200,000 capital gain would have been $60,750 (75%
of $200,000 = $150,000 x's 54% = $60,750).
In 2004, the maximum capital gains tax on the same $200,000 is only $44,000
(50% of $200,000 = $100,000 x's 44% = $44,000).
Of course, this assumes that you already have $100,000 of taxable income.
If in fact, you were a husband and wife with a current taxable income of
$30,000 and we were going to add half of the gain to each of you, the tax
would be much smaller.
I just did a sample of a person with $30,000 of interest and a $100,000
capital gain and the capital Gain would add $16,800 to each of the parties
for a total of about $34,000
Therefore, you are likely looking at $34,000 to $44,000 tax on the unit you
are asking about.
If I am wrong and your ACB is actually $120,000, your tax would be $2,200 to
$4,400 less than the above figures.
 --------------------------
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