Rollover in Canada (Capital Gains for "active' BUSINESS

Sorry, just to clarify ...

My original property was always a rental and I want to buy another one to continue renting.

So does this constitute replacement of one business property by another property for active business use? Or does "business use" mean something specific and that doesn't include renting?

1. If your answer is, "... it doesn't include renting...", what would be the distinction between this situation and some company like Public Storage which rents out small spaces in a big facility for people to store things?

2. If I get another rental property closer to home (two properties) then would it be considered a business, and then could I roll over the first one to one that is closer to home?


david ingram replies:

1. As stated below Rental properties (month to month or annual rentals of residential or commercial space) in Canada do NOT qualify for a rollover. A motel or hotel is not a rental property but an active business. A rooming house board and lodging is an active business and a rental business with 5 full time employees who are NOT related to the owners is an active business. Your question about the storage facility is an interesting one. It likely has 5 full time employees and would qualify but it is a question mark.

2. You could have fifty rental houses. If they were rented by the month, any individual unit would NOT qualify for a rollover.

If a property management firm managed 300 rentals, the rentals themselves would not qualify for a rollover but if they owned the building they used for their office and they needed a bigger building for their office, the office building itself would qualify for a roll over.

On 11/11/05, [email protected] <[email protected]> wrote:
Name: P xxxxxxx


My question is: Canadian-specific


I have owned and rented a property for about 15 years. I was working out of
the country the first ten years.

I bought my own primary residence 5 years ago when I came back.

Now, renting to others is fine by me, but I'd like to buy a property
closer to home so that I can stop by more often.

If I sell the first rental, is there something like a "section 1031
exchange" in Canada where I can rollover or defer the capital gains until I
sell the new property?


david ingram replies:

Canada does have a rollover provision similar to a US 1031 exchange.

However, it only applies to real estate that has been expropriated by a
government (for a road or library or bridge, etc) o r replacement of one
business property by another property for active business use as opposed to
the US which will allow the exchange or a rental house for a rental house or
even a breeding bull for another breeding bull.

So a person with a service (gas) station can sell his or her existing gas
station and buy another one across the street or down the road or even in
another city and roll the profit from the first one to the next one.

However, if the same person owned and operated a station and then rented it
to a stranger for three or four years and then decides to go back into the
business and sells that original building to the new operator and buys a new
station, the capital gains can NOT be rolled over because rental capital
gains can NOT be rolled over unless expropriated as above.


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