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Financing, Mortgages and Insurance What options are best for you and your situation?


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Old 2017-05-29, 11:23 AM
eastendguy eastendguy is offline
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Default Sale of a primary residence- Capital gains question

Hi, can anyone shed some light on this. I built my house and got occupancy in January and want to sell it for a profit. I was told I need to live in it for a year to avoid paying capital gains on it. But now I found this...

Sale of your principal residence

When you sell your home or when you are considered to have sold it, usually you do not have to pay tax on any gain from the sale. This is the case if the property was solely your principal residence for every year you owned it. Starting in 2016, if you sold your principal residence, and it was your principal residence for every year you owned it, you do have to report the sale on page 2 of Schedule 3, Capital Gains (or Losses) in 2016.

Example

John (a resident of Canada) put his principal residence (property 1) up for sale in January 2016. Property 1 has been John’s only principal residence for all the time he has owned it. He purchased a new house (property 2) in February 2016 and took possession of it as his principal residence in March. There is a special rule (the “plus 1” rule) that allows a taxpayer to treat both properties as eligible for the principal residence exemption for a year where one residence is sold and another is purchased in the same year, even though only one of them may be designated as such for that year. For this reason, John can tick box 1 at line 179 on page 2 of Schedule 3 to designate property 1 as his principal residence for all years including 2016 (or for all years except one year), and the CRA will not require Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust) to be completed, assuming John finally sold property 1 before the end of 2016. However, John should keep his decision in writing for future reference, especially for when he sells property 2.



Note


For dispositions that occur after October 2, 2016, for a taxpayer to be eligible for the "plus 1" rule, the taxpayer must be resident in Canada during the year the principal residence is purchased. Therefore, if a taxpayer is non-resident throughout the taxation year in which the property was purchased, the taxpayer will not be eligible for the extra year in calculating the principal residence exemption amount.



http://www.cra-arc.gc.ca/tx/ndvdls/t.../menu-eng.html

If I build another home by end of year, seems like I am good. Am I reading that wrong??
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Old 2017-05-29, 11:35 AM
Sarah2012 Sarah2012 is offline
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Family members had a similar situation and had no issue with CRA. But if CRA sees a pattern, like it happens again next year, then they will probably call you out on it.

I would see your bigger issue as being that you will have to repay your HST rebate if you sell the house within the first year.
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Old 2017-05-29, 11:52 AM
OttawaG OttawaG is offline
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Interesting, I'll be following this too....
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Old 2017-05-29, 12:53 PM
eastendguy eastendguy is offline
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I didn't find any details on the HST rebate that you need to stay a year, but I remember seeing that before....

Let me know if you find anything.
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Old 2017-05-29, 02:25 PM
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gerapau gerapau is offline
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Do this once and you will probably be fine. Do it multiple times and the CRA may determine that flipping homes is your business (even if you live in it) and will not allow you the capital gains exemption. When you sell it after living in it for a short while the CRA can ask you to prove that you didn't sell it simply to make a profit. I believe that if you do this often enough you may find that the CRA may no longer even recognize this as a capital gain and may actually tax the profits as business income (which is taxed much higher than capital gains).

In the end, if you plan on doing this often then talk to a professional who can tell you exactly what to expect from the CRA.
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Old 2017-05-29, 04:36 PM
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good2know good2know is offline
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There is no one year rule regarding principle residences. They look at your intentions at time of purchase and the circumstances that require a sale.

From your description, you bought it with the intention of flipping it for profit.

There a lot of things that can be deducted to get to a net gain amount. It may not be as bad as you are thinking.

Best to speak to your lawyer about this.
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Old 2017-05-29, 06:24 PM
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gerapau gerapau is offline
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Eastendguy, didn't you mention in another thread that you built this home yourself with the help of your dad who is a builder?
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Old 2017-05-29, 06:25 PM
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gerapau gerapau is offline
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Quote:
Originally Posted by good2know View Post
Best to speak to your lawyer about this.
Or an accountant.
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Old 2017-05-30, 01:39 PM
eastendguy eastendguy is offline
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Yes, my dad didn<t charge me to build so I could make some much needed quick cash. The intention was not to make a profit when we did it, but circumstances change lol

I agree, I think an accountant would know more on this.
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