Wednesday, July 17, 1991 - North Shore News - 45 BUSINESS Hour-year rule can translate into savings Ww HEN YOU move into a property you have been renting out, a little-known rule can save The question irose when a reader — a woman who was living in her mother's home — bought a house as an investment. The mather died a few years later. Daughter sold mum’s house, then moved into the place she had been renting out. Under the oJd rules, the daugh- ter would have had to declare as a capital gain any increase in the value of the reveeue property be- tween the time she bought the place and the time she moved in. Under the new rules, provided she hadn't clairned any deprecia- tion, she could either report the capital gain (and possibly claim the capital gains exemption) — or delay reporting the gain until she eventually sold the place. That rule has become fairly widely known. But little publicity has been given to another rule which says: “If you make this election (to delay reporting the capital gain until the property is sold), you may designate the property as having been your principal resi- dence for up to four years before you stopped renting it.*' That comment appears in Revenue Canada’s Rental Income Tax Guide. This ‘‘four-year rule’’ is most often applied in a different situa- tion — when you move out of your principal residence and change it to a rental property. In other words, if you move but keep your home and start renting it out, you may continue to desig- nate it as your principal residence for up to four years. (Note that ¢ you tax, Michael Grenby DOLLARS AND SENSE you ~— or you and your spouse — may have only one principal resi- dence at a time.) That means the taxable capital gains clock starts ticking only at the end of the four years. (If your employer transfers you, the four- year period is extended indefinite- ly provided you move back home again before selling.) As the four-year rule can also apply when you move into a home you have been renting out, again you can minimize any taxable cap- ital gain. However, this break is available only if you move into the home before selling. It wouldn’t apply if you bought a place to rent out and then, without ever moving in, sold. Popular forest walks return IN RESPONSE ¢0 public demand, the Greater Vancouver Regional District (GVRD) is offering free guided walks at Seymour Demonstration Forest (SDF) on Sundays until Oct. 7. The SDF is a 5,600 hectare working forest nestled between Mount Seymour Provincial Park and Lynn Headwaters Regional Park. It is open year-round seven days a week from dawn to dusk. The many walking and hiking trails that traverse tie forest provide a natural outdsor classroom for visitors. ‘‘SDF is a fiving breathing dynamic exhibit of in- tegrated resource management - an area that shows first hand how a forest is managed,” say GVRD officials. The public is invited to escape the city for a few hours by visiting the forest and enjoying the 1991 summer tour program. Partici- pants will be guided through a variety of trails ranging from leisurely strolis to challenging walks. ‘‘Its an invigorating and educational experience,"’ say or- ganizers. There are guided walks around the 1.5 kilometer Integrated Resource Management Loop Trail every Sunday at noon and 2 p.m. The walks are easy, last approxi- mately 1.5 hours and are suitable for the entire family. There is also a more challenging walk offered every second Sunday at noon. The extended tour begins at noon, is offered to people 12 years-of-age and older, and lasts approximately three hours. In addition to the walking tours, the GVRD is offering a 22 km round-trip cycling tour to the Seymour Falls Dam, starting at noon on Sunday, July 21. Orga- nizers say people should wear helmets, bring plenty of drinking water, and expect the tour to last approximately three hours. Participants will cycle on a private toad, see numerous exam- ples of forest management, pause at the oreathtaking mid-valley Karen Long. of Revenue Canada's public affairs division, went into more detail. providing the technical references in the n- come Tax Act. She used the case of the woman who bought a house in 1987 as a rental property while continuting to live with her mother in mother’s home. tn 1990, the daughter gave her tenant notice and moved into her house. “Assuming the woman didn't claim any depreciation — capital cost allowance (CCA) — on her revenue property and had na ather principal residence, she would have no capital gain to declare at any point,’’ Long said. Subsection 45(3) of the tan act allows a taxpayer to clect to delay reporting the capital gain until the property is sold. if that election is made, the taxpayer may then also elect under paragraph 54(G)ii) to designate the property as her principal resi- dence for up to four years even though it was being rented. If there is no subsequent change in use — that is, she continues to live in the place as her principal residence until she sells it — the limitation concerning principal residences under paragraph 40 (2)(b) wiil result in a zero capital gain. “That means the woman won't have to report a capital gain when she moves into her place after renting it out for three years,”’ Long said. “‘When she eventually does sell, she will report a gain — but the calculation (for tax purposes) will be nil. “However, if the taxpayer hadn't moved into the home and for summer point and view the spectacular Seymour Dam, one of the three sources of drinking water for the Lower Mainland. All tours and and walks begin from the SDF parking lot. The !1 km paved road to the Dam is open during the summer, howev- er, cycling « permitted on weekends only. For more information call 520- 1083. $20,070 ECOMES ; 165,000. With a stripped bond from Midland Walwyn, this can be guaranteed! Because investing $20,070 today at 11.35% compounded annually amounts to approximately $165,000 in 20 years, Of course, investing in stripped bonds isn’t quite as easy as it sounds. Selecting the right amounts and maturity dates takes sound judgement and instincts for the future of interest rates. At Midland Waiwyn, our Financial Advisors are dedicated to serving the needs of the individual investor — including making stripped bonds work to meet your specific needs. Call us today. For stripped bonds. And more. MIDLAN D WALWYN INDIVIGUAL FINANCIAL SOLUTIONS tith Floor, 3 Bentoll Centre, 595 Burrard St, Vancouver Phone 661-7781 so hadn't converted it to personal use, then the four-year eleaion wouldn't be available. tn this case. she'd simply repart the fall capital gain when she sold) the place.’ OF course, it prices drop, then you might not want ta avoid or even defer reporting a capital lass. You could use the floss to offset other capital pains, Also, if you claimed deprecia- tion (CCA) before 1985, you must report ‘recaptured CCA" when you da change use from rental to principal residence. If you claimed CCA after 1984, then you must declare the capital gain when you change the use and cannot choose the deferral or the four-year vlec- tion, — Copyright 1991, Mike Grenby is a Vancouver- based columnist and independent financial adviser who works with individuals; he will answer your questions as space allows in his column — write to him ¢/o North Skore News, 1139 Lonsdale, North Vancouver V7M 2H4.) AERIMONIAT HUGH STARK KIRSTIE MACLISE “Over Thoty Years Combined Experience" A Book on Marnage and Separation Agreements. | | Authors of DOMESTIC CONTRACTS @ CUSTODY SIZE Pi65/80R13 @ MAINTENANCE Ted Te 20 ais NELSON STREET. VANCOUVER, B¢ @ PROPERTY DIVISION (NFISON SQUARED PHONE: 682-4900 P175/60R syeont3 | 76.95 | P205/775R15 | Preveuns | aoe 88.95 94.95 97.95 | P1e5/75R14 | PI9S/75R1é P205/75R 14 ! 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