Capital Gains or Income?

[2ndstory]

Hypothetical situation...

You purchase a house at below market value due to it`s state of disrepair. Let`s say you pay $100 000. It is not your primary residence. You put in $50 000 of renos and sell it 6 months later for $200 000.

$50 000 profit. Are you taxed on 1/2 that as in capital gains or are you taxed on the whole profit as income?

Nik

 

[fumbrunner]

QUOTE (2ndstory @ Mar 2 2010, 12:33 PM) Hypothetical situation...

You purchase a house at below market value due to it`s state of disrepair. Let`s say you pay $100 000. It is not your primary residence. You put in $50 000 of renos and sell it 6 months later for $200 000.

$50 000 profit. Are you taxed on 1/2 that as in capital gains or are you taxed on the whole profit as income?

Nik

It will be taxed as business income and subject to whatever tax bracket you are in. You will also be able to claim various expenses related to this business transaction. Capital gains are used in situations of medium-term to long-term holds. CRA will look at your intent, and your intent is pretty clear in this situation

 

[Thomas Beyer]

QUOTE (2ndstory @ Mar 2 2010, 11:33 AM) Hypothetical situation...

You purchase a house at below market value due to it`s state of disrepair. Let`s say you pay $100 000. It is not your primary residence. You put in $50 000 of renos and sell it 6 months later for $200 000.

$50 000 profit. Are you taxed on 1/2 that as in capital gains or are you taxed on the whole profit as income?

Nik
100% is taxable (after expenses) as your INTENT is to sell .. different if you bought as a revenue property .. held it for a few years with income .. then sold it !

 

[RussellWestcott]

REIN™ members

There is a great members` only check list to download, something you should fill out for every property you buy. It will provide clarity as to your intention with your property purchases.

Capital Gains vs. Business Income Checklist...

 

[2ndstory]

Well it looks like I will be paying a bunch of tax on it then. All well, it is a seller`s market here in Winnipeg right now and this particular property has been renovated with reselling in mind. The profits will be rolled into other real estate deals of mine. Renovating and reselling is fun and is relatively quick cash, but it is super time consuming, and it has that taxable income component.

Nik