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Hope your very busy season is slow down a little bit now. As to this topic, one of accountants I know told me that as long as 60% or over 60% of the house was used for principal residence, there should not have capital gain issues when the house was sold. Is this true always? Thank you always for your great contribution to the people you even don't know.
XXXXX
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david ingram replies:
I am just as busy now with all the people I put off until May and we now have the June 15th Tax filing deadline for self-employed Canadians and their spouse and US citizens living in Canada to deal with.
However, your accountant is likely correct in what is "happening" but as I said, he is incorrect according to the "official policy" stated in IRS bulletin IT 120R6
I would be interested in other comments here.
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----- Original Message -----
From: [email protected]
To: CENTAPEDE
Sent: Tuesday, May 04, 2004 11:17 AM
Subject: Daycare house in Canada (and USA)- is any part of thesale taxable? -ask an international income tax and real estate expert - David Ingram 's CENTA Services Group in West Vancouver BC Canada
My question is: Canadian-specific
QUESTION: My wife runs a Licensed Day Care in our house. We have looking to sell the house and buy a home with more bedrooms to accomodate our growing family. My wife will continue to run her Day Care but in the new home. Does she have to pay any taxes on the money we may make from the sale of our house? I hear something about a "clawback clause." What is that?
Thanks in advance
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david ingram replies:
Bulletin 120R6 refers to major structural changes to a house used for business as creating a tax liability.
Therefore the bulletin infers that the sale of a duplex or a triplex will be taxable because there are separate entrances, etc.
The Bulletin also infers that the rental of a couple of rooms to students or the use of the home as an office will not trigger a capital gain. HOWEVER, the Bulletin is only a bulletin and an "interpretation" - It is NOT law.
Law is Section 54(g) of the Income Tax, which allows a house and up to a 1/2 hectare to be sold capital gains tax free if used as your principal residence.
And the sale of a triplex has been ruled tax free in the Fedel Saccomono case.
In my opinion, the Saccomano case makes you tax free on the sale of your house. In his case, he rented out two thirds of a triplex. The judge ruled that since he had bought the house to live in and the suites were a mortgage helper, the whole triplex was capital gains tax free.
Do NOT claim depreciation or CCA. Glad to help you with the returns by the way.
To repeat,
In 1986, Fedel Saccomanno won the sale of his home as a tax free capital gain as his principal residence. He had bought a triplex with two units rented out, and lived in the third unit with his wife on weekends when he was not teaching at the University of Waterloo. When he did not get tenure at Waterloo, and sold the property, DNR tried to tax two-thirds of the profits. Judge Taylor ruled that the entire triplex was tax free, giving credence to my claim in my Investment Guide. In the Investment Guide, I suggest that people with duplexes and triplexes should claim the whole building tax free in spite of the fact that Bulletins IT 120R2 and R3 stated that half a duplex and two thirds of a triplex would be taxable.
NOTE that in the USA, claiming the share of the house as a daycare deduction DOES - absolutely no exceptions - make the house taxable In my opinion, with 100% of taxes and mortgage interest deductible already, most (if not all) US taxpayers should NOT be dedcuting an office or studio, etc in their home.
Answers to this and other similar questions can be obtained free on Air every Sunday morning.
Every Sunday at 9:00 AM on 600AM in Vancouver, Fred Snyder of Cartier Partners and I are hosting an INFOMERCIAL but LIVE talk show called "ITS YOUR MONEY"
Those outside of the Lower Mainland will be able to listen on the internet at
www.600AM.com
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