Let's talk about....Capital Gains Taxes

[Dime_On_Flames]

I'm hoping the braintrust from CP (a very varied and great one) can help me understand capital gains.

My situation is, I invested in some land 5 years ago and it's been put up for sale..FINALLY! This is currently the only investment I have and am still eligible for my first time home buyer tax credit (not sure if that is pertinent information)

Once the land is sold, how much is the capital gains %

Can I protect any of that profit in my TFSA account which has been open for 5 years with nothing deposited as of now?

I look forward to getting schooled on the matter.

Thanks in advance!

[Coach]

I'm fairly sure you don't pay capital gains taxes on home sales, but I could be wrong about that.

[heep223]

Originally Posted by Dime_On_Flames

I'm hoping the braintrust from CP (a very varied and great one) can help me understand capital gains.

My situation is, I invested in some land 5 years ago and it's been put up for sale..FINALLY! This is currently the only investment I have and am still eligible for my first time home buyer tax credit (not sure if that is pertinent information)

Once the land is sold, how much is the capital gains %

Can I protect any of that profit in my TFSA account which has been open for 5 years with nothing deposited as of now?

I look forward to getting schooled on the matter.

Thanks in advance!

What's the structure of the investment? Are you directly on title? Or is it an LP? I'm assuming you don't live on this land.

[Dime_On_Flames]

Sorry I guess I should have been a little more clear. It's an investment company that syndicates the land to individual owners as undivided interest. Each land owner receives their individual land title in their own name.

It is undeveloped land so not considered a residence.

[OMG!WTF!]

You'll probably get a better answer than this, but I think you're taxed on 50% of the capital gain at whatever your tax rate is. If you have any losses this year would be a good time to realize them.

And probably no on the TFSA. It depends a bit on how you own the property, if you own shares of a limited partnership,or mortgage investment corp, maybe. Here's what you can hold in a registered account...

http://www.taxtips.ca/rrsp/qualifiedinvestments.htm

And congrats on making money on this sort of thing. Lots of horror stories in this area.

[heep223]

Originally Posted by Dime_On_Flames

Sorry I guess I should have been a little more clear. It's an investment company that syndicates the land to individual owners as undivided interest. Each land owner receives their individual land title in their own name.

It is undeveloped land so it is not considered a residence.

Pretty sure I know what company you're talking about.

TFSA is irrelevant to this. Your TFSA is simply an investment account in which you do not have to pay any taxes (realized gains or income) on any of the securities held in it. Obviously you could take the proceeds from your land investment, put them in your TFSA/RRSP/cash account and invest. That's the only way a TFSA is relevant here. But I digress.

You will have to pay capital gains tax, there's really no way around it. But like ^ is saying, you can offset your capital gains with any realized capital losses from the past few years (I think it's 3) if you have any. And yes 50% of the gain is taxed at your rate.

[puckedoff]

You will most likely have to pay some tax.
Since its not a principle residence you can't avoid the tax as MattyC suggests. Also you may not use the tax credit as that requires it to be your home residence as well, and that more or less relates to purchase of property rather than sale. It is unlikely that you can bury your gain retroactively in your TFSA.
The best way to avoid tax would be through the structure of your ownership of such investment but again that is something easier to do upon investment rather than pre-sale.

Although a hockey forum is a good start, (not sure if I'm allowed to link other forums?) there is a Forum for Canadian Money that is full of quacks but also some good info. Its some kind of Canadian Money Forum, google may know something about it.

[calf]

Originally Posted by heep223

Pretty sure I know what company you're talking about.

TFSA is irrelevant to this. Your TFSA is simply an investment account in which you do not have to pay any taxes (realized gains or income) on any of the securities held in it. Obviously you could take the proceeds from your land investment, put them in your TFSA/RRSP/cash account and invest. That's the only way a TFSA is relevant here. But I digress.

You will have to pay capital gains tax, there's really no way around it. But like ^ is saying, you can offset your capital gains with any realized capital losses from the past few years (I think it's 3) if you have any. And yes 50% of the gain is taxed at your rate.

This. The thing with TFSAs if you are able to move your share into one, is that you have a deemed disposition. So, if there's a gain, you have to pay the tax (but you wouldn't pay tax on future gains), but if there's a loss, you can apply those losses against other gains. Probably something worth exploring if you have a share plan at work and the shares are eligible.

[Slava]

Yeah unless you already hold the investment in a TFSA (sounds like you don't ), and it's not a principle residence, you are out of luck. You will pay tax in half of the complete gains.

You could write capital losses off against the gain, and can carry those back for 3 years or forward indefinitely. If you have those or think you do then probably send Locke a PM and hire him or another accountant for your 2015 tax return.

[Dime_On_Flames]

Hey guys...thank you for everyone's contribution!

In under an hour of posting this, I've already learned more then I THOUGHT I knew.

So I guess in my situation I will be taxed 50% of the gains in my tax bracket. That's a hell of a lot better then what I originally thought I would get dinged (I thought I was getting taxed 50% of the gains, as in I was gonna lose 50% of the profit!!)

[MoneyGuy]

It's a basic principle that you don't have to pay capital gains taxes on your principal residence.

Sorry, I couldn't resist.

This is one of those occasions where you may want to bring in an accountant. If you've saved any capital losses, this might be the time to use 'em up.

If you have investments in a loss situation, maybe crystallize them - but only if it makes sense from an investment perspective. Don't let the tax tail wag the investment dog.

[Fuzz]

Since it sounds like you are a renter, buy a trailer, park it on the land and make that your principle residence. Then you can sell it tax free*. Tax dodging, 101.


*this is meant to represent legal advice in any way.

[CorsiHockeyLeague]

Basically, this:

1. Start with your proceeds of disposition (the money you got for selling the property).
2. Subtract your adjusted cost base (this is the price you paid for the property).
3. Subtract the costs associated with selling the property, if any (this is actually part of the ACB)
4. Divide the resulting number by 2.
5. Include the resulting amount in your annual income as ordinary income along with all the other income you earned (e.g. your employment income).
6. Pay tax on the total amount of your ordinary income.

[Dime_On_Flames]

Originally Posted by CorsiHockeyLeague

Basically, this:

1. Start with your proceeds of disposition (the money you got for selling the property).
2. Subtract your adjusted cost base (this is the price you paid for the property).
3. Subtract the costs associated with selling the property, if any (this is actually part of the ACB)
4. Divide the resulting number by 2.
5. Include the resulting amount in your annual income as ordinary income along with all the other income you earned (e.g. your employment income).
6. Pay tax on the total amount of your ordinary income.

Does that mean I would need to pay my taxes in the adjusted bracket or in the tax bracket from my employment income?

[Slava]

You pay in your income bracket.

[CorsiHockeyLeague]

There is no "adjusted bracket". You pay tax on your ordinary income. 1/2 of a taxable capital gain is included in ordinary income. The tax you pay is determined by how much ordinary income you have. Amounts above certain threshholds are taxed at higher rates. These are called "marginal rates".

[EldrickOnIce]

Are you sure this is not a farm you are selling?
It sounds like a qualified farm to me...

[Dime_On_Flames]

Originally Posted by EldrickOnIce

Are you sure this is not a farm you are selling?
It sounds like a qualified farm to me...

I like the way you think sir!

Where were you 5 years ago?!?

[darklord700]

I think I know which company you are talking about. Sounds like it turned out well for you, congrats. What is your rate of return?

[Dime_On_Flames]

I don't want to get ahead of myself here...the land has been listed but not sold. With how the economy has been the last 5 years, it's hard to say when and for how much the property will sell for.

As for the ROI, if we get the asking price then it's close to 3 but I'm expecting hoping for between 2 and 3.

Not really savvy in the investment game so I don't know if that's average or above average for a 5 year and counting investment. I think my personality would be better suited for something more fast paced...but that's a whole other discussion to be had!