Part II Rollover in Canada (Capital Gains for "active'

Sent: Friday, November 18, 2005 11:43 AM
To: taxman at
Subject: Re: Rollover in Canada (Capital Gains for "active'
BUSINESS -ask international non-resident income tax expert
preparation & immigration consultant david ingram, experts on
rentals mutual funds RRSP RESP IRA 401(K) & divorce CKBD 600AM 9
AM Sunday on
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?
P xxxxxxx
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, taxman at <taxman at> wrote:
  Name: P xxxxxxx
  My question is: Canadian-specific
  QUESTION: Hello,
  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
  closer to home so that I can stop by more often.
  If I sell the first rental, is there something like a "section
  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
  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
  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.
  Answers to this and other similar  questions can be obtained
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