My question is: Canadian-specific
QUESTION: My wife and i own to houses in BC.I work in construction so we
move around a lot.When home I spend time in both places. We rent 1 of our
houses out for 4 months in the winter and when back in BC stay at our 2nd.
house where my daughters live while going to college.Do I have to declare 1
of these as my principle residence and then pay tax on the other 1 . if so
when do I have to do this and how much would i have to pay?
Thanks XXXXXXXXXXXX
Revelstoke B.C.
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david ingram replies:
Canadians with a city and summer house or city and ski cabin are allowed to
claim one or the other free of capital gains tax.
In your case, either one can be the tax free home for the same number of
years that you own two.
So, if house A went up $100,000 and house B went up $50,000, you would claim
House A as your principal residence for a tax free gain.
You do the calculation on form T2091 and have to designate the actual years
you are claiming. So when you sell the second house, you can NOT designate
the same years on the form for the second house so you end up paying capital
gains tax on a pro-rata basis.
You can find the T2091 worksheet at:
http://www.cra-arc.gc.ca/E/pbg/tf/t2091_ind_-ws/README.html
You can find the T2091 at:
http://www.cra-arc.gc.ca/E/pbg/tf/t2091_ind/README.html
Pretend you have sold both properties for today's value and you will see
what I mean.
You will actually only pay tax when you sell the house that has made the
least profit.
For instance, if you sold house B now and paid tax on the $50,000 you would
have to add one half of the $50,000 to the top of your other income for the
year.
If you had earned $10,000 from other sources you would pay ab out 23% of the
$25,000 as tax
If you had earned $35,000 from other sources, you would pay about 30% of the
$25,000 as tax.
If you had earned $70,000 from other sources, you would pay about 35% of the
$25,000 as tax.
If you had earned $112,000 from other sources, you would pay about 44% of
the $25,000 as tax.
There are actually 5 or 6 different levels in BC, but you get the idea.
Hope this helps - glad to prepare them for you when the time comes - Over
half of our clients do not even live in Canada. Revelstoke is very close
in relation.
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