QUESTION:
Hello
I signed a real estate purchase and sale agreement in September 2003. I
assigned my rights and obligations under this contract to another individual
in May 2005 in exchange for a fee. I have applied the tests in IT-459 and
believe that my transaction does not constitute an "Adventure or Concern in
the Nature of Trade" because of my conduct and intentions.
Given that I plan to report this as a capital transaction, how to I record
this on my Schedule 3? I do not think it is a real estate transaction
because I never actually possesed the property. I believe the transaction is
more like trading a futures contract.
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david ingram replies:
The transaction you describe is a venture in the nature of trade and taxable
at full rates - Your describing it as a futures contract further enhances
my opinion because Futures profits are not capital gains either.
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An exception would be if you had absolute proof that you had bought this
unit to actually move in to and some circumstance (other than a good sale
price) forced you to sell. A justifiable event would be a job lost, a job
transfer, birth of a child making the unit too small, an injury reducing
your income, etc. However, if you just sold because of a good offer, it is
taxable at full rates.
Goto www.centa.com and read the Capital
Gains section in the TAX GUIDE in the box in the top left hand corner.
There are about 30 pages and you will find an explanation of section 36,
etc. It will also help to know that ALL real estate transactions start off
as straight income unless there is strong evidence to the contrary.
--------------------
David Ingram's US / Canada Services
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Disclaimer: This question has been answered without detailed information or
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