Investment property (bare land) in BC


Have recently purchased several acres of bare land on Vancouver Island that is currently being used for hay production. My lendor cannot provide conventional mortgage as obviously there is no residence, so am stuck with a LOC @ prime. (I have the 25% down req'd for raw land). I do plan to move and build on this property in approx 4 - 5 years. In the meantime, i currently own and reside on a small acerage in the lower mainland . Question - bank suggests I should just consider this Island property an investment and therefore I can write off the mortgage interest, custom haying costs, ferry trips etc., however I am concerned about the long term ramifactions of going this route (deemed disposition when I move in etc.?) Further, the bank suggests I take the mortgage balance out on my current property, (so Island property will be paid off) which then provides two benefits. I can get a conventional mortgage at 5.1% (obviously by increasing my mortgage on my Fraser valley residence
to accomodate the Island property) and further, this method will also make my current residence mortgage interest deductible.  What do you think of these suggestions? I want to ensure I comply with the CRA certainly, but am unclear if this will fly or would even be prudent.  Love your site by the way!

david ingram replies:

Do NOT take your advice from this email reply.  You need some serious consultation.

In general interest on vacant land is NOT deductible unless you are in the full time business of developping residential property. 

The 'reaon' you bought governs what it is although you can change your mind about anything.

If you bought the land to farm, interest should be dedcutible subject to hoppy farm rules.

Get hold of bulletin IT-533 and read it a dozen times for the CRA take on interest deductibility.  THEN come and talk to me or someone  like me.

Also read my November 2001 Newsletter in the top left hand box at �