16 — Wednesday, March 24, 1999 — North Shore News north shore news

<2 BUSINESS Revenue Canada Strikes home

BUY a home. Spend perhaps 120 hours to fix it up while you iive there. Your efforts result in a profit of $12,000 when you sell.

There’s normally no tax when you sell a principal resi- dence ‘and make a profit. In effect, you have been earning $100 an hour, tax-free.

Great strategy, right? Well, Revenue Canada knows all about this approach. Even if you cite non-tax reasons for your moves, you'd better have a strong case.

Last month’s budget didn’t change many tax planning, rules, (The major exception: a

proposal to tax family trust Aiivtdends paid to minors at

the highest rate.)

So as you file your 1998 return and lament all the tax you paid, plan now to lower that tax bill this year and in the future. But do it carefully, because Revenue Canada is getting tougher.

You have probably heard the tax department is taking a closer look at deductions claimed by the self-employed.

Now Don Goodison, a

partner of Kemp Harvey Goodison, certified general accountants, notes in his CGA Magazine column Revenue Canada has scored a victory against the buy-improve-sell strategy to produce tax. free gains from a principal resi- dence.

Many people take advan- tage of or at least think about buying « home, fixing it up while living there, chen selling.

Berween 1989 and 1993,

Jeffrey Watson bailt four hous-

es, lived in them with his fami- fy, ther sold them, Revenue Canada challenged two of the sales, oa which he made -— but paid no tax on -— profits of $20,000 and $26,000. Watson cited non-tax rea- sons for his moves. One house was on a busy street in front

een

with a steep gully at the back; another was on a biind curve. Watson said he feared tor his children’s safety.

But Revenue Canada pointed out Waison knew the Properties were on dangerous streets when he bought them.

So if you consider the pre- ceding strategy, be prepared to defend your case on the fie- tors Revenue Canada checks, including the nature of the property sold, length of own- ership, frequency of similar transactions, work dene on the Properties, reason fer selling and motive.

— Coprright 1999 Mike Grenly

Mtke Grenby is a columnist and independent personal financial adviser; e-mail emike@qrenty.com>.

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