taxes and rent to own deals

[melkinch]

So I have been away from the REI world for awhile but now need to get my taxes done and not sure what to do. So I closed a R2O deal back in April 2015. My name was not on title, except for the moments between the transfer from invester to the homeowner. I had an investor that bought the house with cash and then I paid him as if I was paying a mortgage and also a balloon payment at the end. So the money from the homeowners came to me and then I paid the investor out for" mortgage" and interest. So do I claim the capital gains or is there even going to be capital gains as we only had the house for 18 months and it was never ended to have it for more than 2 years? Thanks

 

[Thomas Beyer]

It is NOT a capital gain as the intent always was to sell. A RTO deal, like a development deal, is (active) business income.

Capital gain generally applies if the exit price and the exit timing in unknown, and rental income is collected during that period.

 

[Sherilynn]

Thomas is correct. When you purchase a property with the intent to sell within a relatively short time frame, it is considered to be more like a long flip rather than a regular rental property investment. Therefore, all gains are taxed as income and capital gains don't apply.

On the flip side (pun intended), one could purchase a property with the intent to hold it long term and suddenly decide to sell after less than a year, and those gains could be considered capital gains rather than income. Intent is a big deal with the CRA. (Of course, proving intent can sometimes be a challenge.)