Capital Gains Tax

[Wayne]

I own a house in Vancouver that I live in. Its never been a rental property while I`ve owned it. I just bought another house which I intend to live in after getting possession on Jan 31st, 2010. My intention is to reno the 1st house and sell in the spring. The house will remain vacant until being sold.

Will I be subjected to paying capital gains tax on the sale if this property ?




Thanks,

Wayne

 

[gwasser]

QUOTE (Wayne @ Dec 12 2009, 02:46 PM) I own a house in Vancouver that I live in. Its never been a rental property while I`ve owned it. I just bought another house which I intend to live in after getting possession on Jan 31st, 2010. My intention is to reno the 1st house and sell in the spring. The house will remain vacant until being sold.

Will I be subjected to paying capital gains tax on the sale if this property ?

Thanks,

Wayne

You will have to confirm this with your accountant. Yes in theorie you probably have to pay cap gains on the value increase from the time you vacate to the time you sell. So, to be safe, get a CMA (a current market analysis) from a realtor. Why a realtor and not an appraiser? Because appraiser evaluations tend to be less reflective of current market value and are more geared towards financing - also, they cost money. In fact, I would suggest you may get a higher CMA value and that works in your advantage - use the realtor you intend to list with.

You should also keep track of your renovation costs and if you do the work yourself find a way to value it properly - again you have to talk to your accountant. Usually, a renovation may make a property easier to sell, but you should not expect to recover all invested money. So the chance that you will make significant cap gains on top of the tax deductable reno costs is going to be very small.

Only, when flipping properties in a fast rising market you do have a chance to recover renovation costs fully. When renovating your old place, just focus on cosmetics, a paint job, a bit of money in the kitchen and bath and maybe some spring flowers in the front yard. Focus on `curb appeal` and cleanliness that gives the best return.

Those are my two cents.

BTW keep track of property taxes, utilities and similar expenses during vacancy. They are fully deductable from your income (which is a higher tax rate than capital expenses). Also, try to differentiate between reno costs that are considered capital expenses (e.g. kitchen cabinets) and operational expenses such as carpet cleaning.

 

[Thomas Beyer]

QUOTE (Wayne @ Dec 12 2009, 02:46 PM) I own a house in Vancouver that I live in. Its never been a rental property while I`ve owned it. I just bought another house which I intend to live in after getting possession on Jan 31st, 2010. My intention is to reno the 1st house and sell in the spring. The house will remain vacant until being sold.

Will I be subjected to paying capital gains tax on the sale if this property ?
yes .. but only on the portion of the gain, if any (minus expenses) from Jan 31, 2010 to sale ..

thus, if property is worth $600,000 on Jan 31,2010 .. and you spend 50K renovating it .. and then pay $25,000 to a realtor and $5000 in legal and sundry costs you`d pay taxes on 700,000 - 600,000 - 50,000 - 30,000 i.e. $20,000 assuming you`d sell it for 700K

Thus, get an appraisal or at least a realtor CMA for late January (aim high !!) ..

 

[Albertritchot]

Congratulations on the purchase of your new home.

Revenue Canada has an interpretation bulletin on principal residences that might be of interest to you.

The location of the bulletin is: http://www.cra-arc.gc.ca/E/pub/tp/it120r6/it120r6-e.pdf.

It`s a bit of a murky document but points 10 and 25-30 or so might be on interest to you or for a future meeting with an accountant.

From what point 10 states, it is possible to have two principal residences in the year when you sell the previous one and buy the new one. I would be optimistic that you will be able to find a way to eliminate all taxes and successfully pass the FMV and improvement costs of your home.

Hope this helps!

Cheers,

 

[Wayne]

QUOTE (Albertritchot @ Dec 12 2009, 06:55 PM) Congratulations on the purchase of your new home.

Revenue Canada has an interpretation bulletin on principal residences that might be of interest to you.

The location of the bulletin is: http://www.cra-arc.gc.ca/E/pub/tp/it120r6/it120r6-e.pdf.

It`s a bit of a murky document but points 10 and 25-30 or so might be on interest to you or for a future meeting with an accountant.

From what point 10 states, it is possible to have two principal residences in the year when you sell the previous one and buy the new one. I would be optimistic that you will be able to find a way to eliminate all taxes and successfully pass the FMV and improvement costs of your home.

Hope this helps!

Cheers,


This may be a silly question, but will the money I earn on the sale of this house be classified as "Income" and in be subject to personal income tax ?


Thanks

 

[Thomas Beyer]

QUOTE (Wayne @ Dec 17 2009, 10:23 AM) This may be a silly question, but will the money I earn on the sale of this house be classified as "Income" and in be subject to personal income tax ?
it will be qualified as a capital gain .. but only if you chose to disclose this to CRA/accountant (highly recommended .. but often "forgotten") !!

 

[Albertritchot]

Here is some information obtained from a version of Preparing your income tax returns. It`s not exciting reading but may provide more ammunition what you meet your accountant to prepare your 2009 T1 personal tax return.

Filing requirements

Strictly speaking, the law requires you to file form T2091 with your T1 return for the year in which you sell (or grant an option on) your principal residence to designate the years you are using in the exemptio calculation and calculate any gain which remains. However, it is CRA`s policy (stated in both the Capital Gains Guide and Interpretation Bulletin IT-120R6 para.7) that in general you need not complete and file form T2091 unless a taxable capital gain on the disposition remains after using the principal residence exemption.

(I believe that your accountant will confirm that the house being sold can make use of the principal residence exemption)

Here is another script

...Thus in the common case where you sell your house and it is the only one owned by you and your immediate family, and you have used it as a principal residence for at least some time during all the years you owned it, you in effect need not report the disposition. Where any of the issues raised in these paragraphs may indicate that the principal residence exemption may not cover the full capital gain on the house, you should file form T2091. Where you or your family own two or more properties and you clearly intend to use the full exemption on the property you sold in the year, you need not file T2091 but you should keep a record of the years designed on the property sold so that you do not use them again on another property.

p.314 of Preparing Your Income Tax Returns 2007 edition.

http://www.cra-arc.gc.ca/E/pbg/tf/t2091_ind/README.html

The above link gets you the T2091 for your review.

Cheers,