18 ~ Wednesday, July 7, 1993 - North Shore News AIRIE (et A fine Inco} EY USINESS — x line between e and capit THE CAPITAL gains tax rules on making money through revenue property have been tightened. So people are look- ing more closely at making money through their principal residence: buying a place, improving its value and then sel- ling for a tax-free profit. “But that also means you can expect Revenue Canada to look more closely at people who are taking advantage of the tax- exempt status of the principal res- idence,”’ said Don Goodison, a partner of Kemp Harvey Goodison, certified general accou- tants. ; . Goodison said you have to be “awfully careful’ if you make a habit of buying, fixing up and then selling a principal residence. “Bach case is judged on its own merits,’’ he said. : In a Tax Forum article he wrote in CGA Magazine, Goodison cited a case in which a husband and wife came out the winners — even ’ though the husband had told the tax auditor his plan was to buy, . build and sell four houses so the fifth would be debt-free. Revenue Canada found the couple had bought and sold three principal residences over an “eight-year. period.’ °. . It said these transactions were ‘adventures in the nature of trade and so assessed the profits as in- come — rather than allowing the tax-free capital gains normally associated with a principal resi- dence. ©. ‘The auditor discovered the couple had occupied one house from 1980 to 1983, another from 1983 to 1985, and a third from 1983 to.1988,”* said Goodison. ’ “He assumed the couple’s in- terest was to earn income from the sale of the houses. Still, he decided to tax the gain on the sale of only the second home as in- come. The couple appealed his decision.” When the case was heard in the Tax Court of Canada, evidence showed the couple had no sophisticated experience in the real estate business. . : “They said each house was sold only when it reached a point where it no longer suited their “needs,’’ Goodison said. “They outgrew their first house. The se- cond house, which they built, was _ much more appropriate for them at that time. As a matter of fact, before they even had a chanced to ra atin EEO Michael Grenby DOLLARS AND SENSE “The couple kept no records of the costs; the financing was not abnormal. The eventual sale of this house was due to external factors. The third house, smaller ° and cheaper than the second, was - also sold because of external fac- tors.”’ The court, noted Goodison, considered the financing of the house in question, the couple’s ef- forts to sell it and their sophistica- tion regarding the real estate in- dustry. “In this case, the court was satisfied the couple had legitimate reasons for their real estate activi- ties,”’ he said. The same reasoning can apply to the buying and selling of reve- nue property; after all, paying tax on up to 75% of a capital gain is still better than paying tax on 106% of income. in its newsletter Tax Topics, CCH Canadian Limited described how a taxpayer bought a building and sold it after only six weeks for a profit of more than $275,000 — and was allowed to declare the profit as a capital gain instead of . income. Six months previously, the tax- payer had taken an option to buy the building. ‘‘At the time, the taxpayer genuinely intended to transform the building and operate it as a commercial centre. complete construction, they turned © All activities were compatible with down an unsolicited offer to pur- ~. chase: CRUE Rate Watch this intention.’’ The taxpayer even had a history oe «++ THE RETIREMENT SPECIALISTS MONTHLY INCOME ON $50,000 INVESTMENT *Rates subject to change without notice. For your personal Annuity or RRIF illustration or a copy of our Guide, call 925-3101 RSP / GIC Rates Bonus Rates may be available. Ste. 401, Kapilano 100 Park Royal South, West Vancouver SGIGUARD FIHANCIAL LYB. Conseftonts & Brokers since 1974 I gain of buying residential buildings and selling them after a short time, but this ‘‘didn’t necessarily mean it was the ‘axpayers’ intention in this case,"’ However, in another case, the taxpayer lost an appeal after buy- ing two highly leveraged proper- ties, holding one for three years and the other for four years, and then selling them at a profit. Revenue Canada reassessed the taxpayer, saying the profits should be taxed as income — primarily because the high levels of financ- ing on the properties made it un- likely they would show profits from the rental income. This taxpayer had previously run into deficits when he bought another building with very high financing. ‘‘On balance, the tax- payer’s activities constituted real estate speculation rather than the assembling of a capital project.” Mike Grenby is a North Shore-based columnist and in- dependent financial adviser who works with individuals; he will answer your questions as space allows — write to him c/o The North Shore News, 1139 Lonsdale Ave., North Vancouver V7M . CLIVE RE MASON The Royal Architectural ins- Utute of Canada Medal was recently awarded to Clive for his thesis The Machine tn the Garden: Urbanization tn North - Vancouver upon his graduation with Distinction in the Master of Archilecture programme, Tech-' nical University of Nova Scotia. Congratulations and welcome home. Your loving wife, Tammi. ASTUTE SEER RECS PTA EES q - woo Sed Eee Tre di Summer jobs raré commodity WITH THE summer well under way, the North Shore Canada Employment Centre for Students is assisting many unemployed secondary and post-secondary students to find work, “With the high school stu- dents now out for the sum- mer,” said supervisor Andrew Arida, ‘there are an increasing number of students visiting the office." Statistically speaking, student employment on the North Shore is up 22.3% from 1992. However, because many stu- dents are applying for jobs be- fore they are advertised, an abundance of positions are fill- ed without the assistance of the centre. . Companies are beginning to hire earlier in the year, leaving many well-qualified students currently pounding the pave- ment on the North Shore. Many summer positions are available through the Canada Employment Centre for Stu- dents. Jobs specific to. the North Shore are posted at Suite 101- 12GO Lonsdale Ave. in North Vancouver. Students are: ‘en- couraged to visit the office. if. they require any. assistance with their job search. : At this FREE seminar, you will leam: .¢/ ( The 4 most Important rules for real estate Investing! [ Which areas ave poised for profit—and why! ty How to get Immediate credit approval fer 75% financing! (w How to profit from ‘Change of » Use’ and ‘The Ripple Effect’! ( How to turn taxable income into = AN: deductible Investment debt! MOSHER ‘HOME EQUITY | -- { More and more and morel! LAND DEVELOPMENT j Join us for a FREE 70-MINUTE PRESENTATION at 7:30 PM. SHARP. I: NORTH VANCOUVER _ . Lonsdale Quay Hotel: 123 Carrie Cates Wednesday, July 7 Contact your independent financlel planner, o call for an lnvestmnacd peckage end seinnars in your area: y Tho Home Equity Land Developmont Limited Partnership” U.C, Hemo Equity Development inc. -_ 1000 - 1288 Wort Georgia Streat, Vaneoeven, 8.0. VOE 459 . 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