When you sell a property that isn’t your principal residence and make a profit, half of the amount is taxable. This is the so-called capital gains tax and it’s pretty straight forward, but every situation is different. It all depends on how the Canada Revenue Agency views the transaction.
Real estate agent Romano Giusti bought a condo on Richards St. in Vancouver in November 2006 and re-sold it in June 2007 for a profit of $30,831. When he filed his tax return, he paid no tax on the profit, saying it was his personal residence.
The CRA re-assessed this return and discovered that Giusti had bought and sold seven condos in seven years. He argued that he intended to make the Richards St. condo his personal residence, but changed his mind because of the street noise, irresponsible renters and pets in the building. So, he moved.
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Giusti appealed and lost. In a case heard on January 25, 2011, Judge G.A. Sheridan found that Giusti was flipping houses and so was not entitled to the principal residence exception. He also penalized Giusti.
For most people, if you make a $30,000 profit, you only would pay tax on $15,000. In this case, the court found that because Romano was in the business of buying and selling homes, he had to pay tax on the entire profit.
Here are some things the court and CRA will look at in deciding whether a profit is a capital gain or income:
1.The nature of the property sold;
2.The length of the period of ownership of the property;
3.The frequency or number of other similar transactions by the taxpayer;
4.Any work done to make the property more marketable or to attract purchasers;
5.The taxpayer’s motive or intention at the time he acquired the property.
The fact that Romano was also a real estate agent did not help him, since most of his business income related to commissions on real estate contacts.
The key factor in most court cases is the number of deals that you have done over the last few years. If there are not many deals, it is likely that it will be called a capital gain so half will be tax free. Still, if you are not sure, it is better to obtain tax or legal advice before you sell any property, to make sure that you
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By: Mark Weisleder is a Toronto real estate lawyer.