My question is: Canadian-specific
QUESTION: My common-law spouse and I purchased a condo in May/06 and now
realize this is not going to work for us. If we sell now (August/06) will
we realize any capital gains? Is there a time-specific period one must live
in a residence before capital gains become a "Null and Void".
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david ingram replies:
I don't know if you will achieve any capital gains in the last three months
because real estate has gone down over much of North America and has slowed
down in the Vancouver area. By the time you have paid the real estate
commission and other costs of sale like mortgage penalties, you may find
that you have not made a profit and the question of capital gains "tax" is
moot.
However, assuming that it has gone up 20%, the question of capital gains tax
and how long you have to live in it is not quite the right question. To be
tax free in Canada, it should have been purchased as a personal residence.
If it was purchased as a personal residence and your situation changes -
divorce, marriage break-up, job transfer, illness, car accident, birth of a
baby, can't stand the neighbours, a local crime scares your sense of
security into move mode, win a lottery - then the sale would be tax free
even if you were only there for two weeks.
If you bought it to flip and lived in it for two years, the profit should be
100% taxable.
If it was a second home in Vancouver because you live in a waterfront home
at Sechelt and just use the Vancouver condo as a pied a terre, than either
it, or the Sechelt home would be subject to capital gains tax.
If it was bought as a rental and then sold, it would also be subject to
capital gains tax. With capital gains tax, you pay tax at full rates on 50%
of the profit.
Goto www.centa.com and read the capital gains section of the TAX GUIDE which
you will find in the top left hand box.
The following former Q & A will help:
-----------------------------------------
My question is: Canadian-specific
QUESTION: Hi, I purchased a presale condo last year, planning on moving in
this summer. However, the market has risen some more. Now I'm thinking of
selling it on assignment. So what are the implications, if any, for income
taxes? Would it be considered capital gains, or nothing because it's
considered principal residence (even though I've never lived in it)? This
is my 1st and only home purchase.
-------------------------------------
We have businesses and houses in the provinces of Alberta (1) and BC (4).
Since it is in BC where we started, we had declared the BC house as our
primary residence.
This year, however, we decided to switch and declare Alberta as our primary
in view of our anticipated move of selling that house (perhaps, within, say,
6 months).
We think the Alberta business justifies our having to declare our house
there as a primary residence and notwithstanding that we still use the BC
house, it is our belief that for so long as you declare only one residence
at a time (i.e. avail of the grant, etc.), subsequent sale of it will not
result into capital gains tax.
Is this a very safe stand to have? We are not sure! Considering that the
capital gains of the house are expected to be in 7 digits, our fear
multiplies and begin to have doubts!
Also, currently, we get 95% of our income from the BC businesses and still
live on our BC house.
Our youngest son studies in BC and can not be relocated.
What could be the best moves?
_________________________________________________________________
david ingram replies:
You misunderstand the situation. You can only have one principal residence
at any one time and the gain is calculated by a formula where you declare
specific years of ownership to be your principal residence. Therefore if
you declare house A (for Alberta) to be your principal residence for the
years 1998 to 2006, when it comes time to declare house B (for BC for
instance) you have already used the years 1998 to 2006 and House B becomes
taxable for those years.
You can find the relative form T2091 which needs to be filled out when you
have more than one house at
http://www.cra-arc.gc.ca/E/pbg/tf/t2091_ind/t2091_ind-03e.pdf
The worksheet is at:
http://www.cra-arc.gc.ca/E/pbg/tf/t2091_ind_-ws/t2091_ind_ws-03e.pdf
Declaring yourself a resident of Alberta when you really live in BC would be
a criminal offence if they decided to prosecute.
However, to be fair, I have never seen a criminal prosecution for this. I
have seen numerous people penalized and interestized (new word) when BC
catches up though.
Before you do anything, you should likely consult with me or someone like me
who really understands the situation. If the Alberta property has increased
over a $1,000,000 and the BC property is only up $400,000, it makes all the
sense in the world to declare that house your tax free residence. It just
means that you WILL have to pay tax on the BC house for that period of time.
The same situation would apply if you had a house in town and a spectacular
condo at Whistler. You would declare Whistler tax free and pay tax on the
house in Vancouver town.
-------------------------------------
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