Capital gains questions

[Bend it like Bourgeois]

I bought a condo under construction and it'll be finished in Feb-ish.

At the time I was hoping to put my mom in there. She may not want it now, but is still currently renting. I was going to rent it out in that circumstance, but I'm unsure now.

If she goes on title, can we sell it as her residence and pay no tax? Or does she actually have to live in it?

If we do have to pay capital gains, who declares the gain? Is it split betwen my wife and I or can we designate it hers alone (at a lower tax bracket)?

I'll check with my accountant of course, but I'm curious if anyone here has had a similar experience to share.

(I'm aware that CRA may deem this income, not a capital gain depending on how they interpret my intent)

[troutman]

Has to be her principal residence to avoid capital gains.

http://www.cra-arc.gc.ca/E/pub/tp/it...it120r6-e.html

In order for a property to qualify for designation as the taxpayer's principal residence, he or she must own the property. Joint ownership with another person qualifies for this purpose.

The housing unit representing the taxpayer's principal residence generally must be inhabited by the taxpayer or by his or her spouse or common-law partner, former spouse or common-law partner, or child.

A taxpayer can designate only one property as his or her principal residence for a particular taxation year. Furthermore, for a taxation year that is after the 1981 year, only one property per family unit can be designated as a principal residence.

[Bobblehead]

If you bought the condo then it is your gain (or if you and your wife both put in money, you can split it). It sounds as if your mother is a non-factor in this; she didn't buy it, you did.

As for income vs cap gain, I would expect this to be a gain unless you have flipped another property recently.

[Bend it like Bourgeois]

Originally Posted by Bobblehead

If you bought the condo then it is your gain (or if you and your wife both put in money, you can split it). It sounds as if your mother is a non-factor in this; she didn't buy it, you did.

As for income vs cap gain, I would expect this to be a gain unless you have flipped another property recently.

My wife and I can split it, or must split it?

If the whole gain can go in her tax bracket, woohoo!

[Bobblehead]

Originally Posted by Bend it like Bourgeois

My wife and I can split it, or must split it?

If the whole gain can go in her tax bracket, woohoo!

How much money did you each put in?
I know that can be tough to figure out, but look at it from the CRA point of view - if you are pulling in 80K a year, your wife is pulling in 20K, if you try to claim that she was buying the condo so she claims all the gain, they are going to call BS.

Get as close as you honestly can to each of your contributions and then even if it is questioned you will have honest verifiable answers.

In my time speaking with people at CRA, most are like everyone else except that they have a job where they see lots of people trying to cheat. If you do everything above board with them then the only ones who will give you trouble are the a-holes (and there are a-holes in every profession)

[MoneyGuy]

I'm a certified financial planner, not an accountant, but I handle these kinds of inquiries for my clients. In fact, this sounds so much like a client of mine. You're not in Fort Sask., are you?

What bobblehead is telling you here is correct.

Originally Posted by Bobblehead

If you bought the condo then it is your gain (or if you and your wife both put in money, you can split it). It sounds as if your mother is a non-factor in this; she didn't buy it, you did.

As for income vs cap gain, I would expect this to be a gain unless you have flipped another property recently.

The cap gain is either yours or your and your wife's depending on the source of the funds. Also, if your intent was as you stated, then you should be okay with CRA. When this same thing happened to my client, they asked if they'd be okay with it being a cap gain and not taxed as income. I told them I'd make sure this was captured in my notes from our meeting and if there was ever a problem they could direct CRA to me for verification. I think you'll be okay.

Two things to be careful on: These things are open to interpretation and no one knows for sure how an auditor will rule. Even an accountant will tell you that this is how is SHOULd work, but it's not for sure. Never (and this goes for anyone in these tax situations) step over the line on these matters. I think you'll be fine if you follow the advice on this thread, but any time there is any uncertainty, check and verify and don't don anything that is in any way wrong.

For example on the last one, if anyone tries to slip a cap gain through, put through non-legit expenses or similar tactics thinking "oh, they'll never audit me anyway," that person could be in a world of trouble. I've seen it before where folks try things, get audited and CRA is able to make their life miserable for a very long time. It's not worth the risk.

However, I think you've been well advised here.

[Bend it like Bourgeois]

thanks all

I want to squeeze every nickel out i can - within the rules.

Determining the source of the funds will be tricky. I'll have to give that some careful consideration. a) we put next to nothing into the place; and b) if you go back a few years our incomes are similar, but in the last 18 months (after we signed on to buy the place) my wife's gone on mat leave again and then stayed home. Her income is much lower now, but not when we actually stroked a cheque. I'm not even sure what her income would have been at that time (because of mat leave from our first). I'll go back and check.

Thanks for the tips.

[Winsor_Pilates]

Originally Posted by Bobblehead

If you bought the condo then it is your gain (or if you and your wife both put in money, you can split it). It sounds as if your mother is a non-factor in this; she didn't buy it, you did.

don't think that's true.
If this is a pre-sale, as it sounds to be, nobody has bought anything yet. They have simply entered into a contract to do so at a later date(February). If he assigns title to his mother and she completes on the unit, she is the buyer, not him. Deposits do not make you a buyer, only completing on the unit does.
If your mom can get a more favourable tax hit, and can get a mortgage, put it in her name.

[MoneyGuy]

Originally Posted by Winsor_Pilates

don't think that's true.
If this is a pre-sale, as it sounds to be, nobody has bought anything yet. They have simply entered into a contract to do so at a later date(February). If he assigns title to his mother and she completes on the unit, she is the buyer, not him. Deposits do not make you a buyer, only completing on the unit does.
If your mom can get a more favourable tax hit, and can get a mortgage, put it in her name.

Not sure if youy're correct, but even if Mom can't qualify for the mortgage, the kids can go on title and it shouldn't affect the tax situation if that was done merely to assist Mom to buy the house and the kids are clearly not co-owners in the traditional sense.

[Winsor_Pilates]

Originally Posted by MoneyGuy

Not sure if youy're correct, but even if Mom can't qualify for the mortgage, the kids can go on title and it shouldn't affect the tax situation if that was done merely to assist Mom to buy the house and the kids are clearly not co-owners in the traditional sense.

It is true. I work in pre-sales, and the property is not officially owned or purchased until completion. Assigning the name on title before completion will change who the buyer is.

The rest, I'm misunderstanding.
If the kids go on title and have this as a second home and then sell, wouldn't they be taxed as a cap gain? where as having the unit as a primary residence in the mothers name would not?

or are you referring to the kids being on title for the mortgage only, not the property?

[Bend it like Bourgeois]

I think the issue there - as troutman pointed out - is she'd have to physically live in the place to qualify as her residence.

So I can put her on title as an owner, but if she doesn't live in the place it's still not exempt from cap gains.

I think anyway.

[KTown]

Originally Posted by Bend it like Bourgeois

I think the issue there - as troutman pointed out - is she'd have to physically live in the place to qualify as her residence.

So I can put her on title as an owner, but if she doesn't live in the place it's still not exempt from cap gains.

I think anyway.

Just have all her mail go that property directly and the government will have a hard time proving she don't live there

[Mccree]

Originally Posted by KTown

Just have all her mail go that property directly and the government will have a hard time proving she don't live there

Not true i know of several "steak outs" performed by CRA but for one house you are right it will be hard to prove she does not live there.

[Slava]

Originally Posted by Mccree

Not true i know of several "steak outs" performed by CRA but for one house you are right it will be hard to prove she does not live there.

mmmmmmm...Steak

[Bobblehead]

CRA will follow the money. You buy it, they will say it is yours regardless of what you put on the title. You would need a legal agreement saying how you are buying it and she is paying you back, with specific, legally binding terms (something a real estate lawyer would need to help you with - set an appointment with Troutman to determine your real options). Otherwise they will say you are only allowing her to live there rent free. Which is fine, but won't allow her to declare it her primary residence.

It always comes back to the money, and CRA is very good at knowing what the tricks are that people use to avoid paying tax.

[MoneyGuy]

Originally Posted by Bobblehead

CRA will follow the money. You buy it, they will say it is yours regardless of what you put on the title. You would need a legal agreement saying how you are buying it and she is paying you back, with specific, legally binding terms (something a real estate lawyer would need to help you with - set an appointment with Troutman to determine your real options). Otherwise they will say you are only allowing her to live there rent free. Which is fine, but won't allow her to declare it her primary residence.

It always comes back to the money, and CRA is very good at knowing what the tricks are that people use to avoid paying tax.

This is correct.

[SaprykinPWNSjoo]

sorry to revive the thread..But is it true you don't have to live in your residence for 6 months in order to sell it and avoid capital games. I cant navigate cra website at all

[Robbob]

I got a capital gains question. short version of the story a couple years ago after getting married we bought a new place and my old one bedroom we agreed to sell it to a friend of my dads (long story short again he declared bankruptcy way back and was just trying to establish roots again and we were helping him out). I guess this process was only suspose to take a few months but sure enough a couple years later (everything from his file getting lost and having to start over and his file sitting there a couple times over holidays) he finally got his ducks in a row. He was paying minimal rent over the time ($650 in an apt near 17th SW) when he finally got his ducks in a row but then the housing crisis happened and he had a mortagage deal fall threw because of it. So in the end the only thing he could get from a lender was a mortgage at 8% with a $15,000 lender fee (on 150k). Needless to say he couldn't take because its just not reasonable so I told I can't wait any longer because I really need to unload the property because I'm spinning my wheels and need to move on.

I know I was way to nice to the guy but I think I'm going to get screwed in the end because I think I have to pay capital gains on that property because its been so long. Is that pretty much the jest of it?

[sixpacked]

Originally Posted by Robbob

I got a capital gains question. short version of the story a couple years ago after getting married we bought a new place and my old one bedroom we agreed to sell it to a friend of my dads (long story short again he declared bankruptcy way back and was just trying to establish roots again and we were helping him out). I guess this process was only suspose to take a few months but sure enough a couple years later (everything from his file getting lost and having to start over and his file sitting there a couple times over holidays) he finally got his ducks in a row. He was paying minimal rent over the time ($650 in an apt near 17th SW) when he finally got his ducks in a row but then the housing crisis happened and he had a mortagage deal fall threw because of it. So in the end the only thing he could get from a lender was a mortgage at 8% with a $15,000 lender fee (on 150k). Needless to say he couldn't take because its just not reasonable so I told I can't wait any longer because I really need to unload the property because I'm spinning my wheels and need to move on.

I know I was way to nice to the guy but I think I'm going to get screwed in the end because I think I have to pay capital gains on that property because its been so long. Is that pretty much the jest of it?

Unfortunately, you are going to get dinged.

[Robbob]

figured as much, at least the place doubled from when he was first going to buy it and quadrulpled what I first paid back in 2000.