We are planning to travel and stay on away from home for up to 2 years on Vancouver Island, if we decide to sell at the end of that time will our house still be considered our primary residence? Also - someone told me that if I've ever used a room at home as an office that I have to pay capital gains on that portion of the house sale, is this true? Question Number Three - I sold my business of 42 yrs, not incorporated, and want to know if I will have to pay capital gains there. I received 100 thousand down and am owed 85. Thanks, xxxxxxx
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david ingram replies:
1. If the house is empty, it will be tax free if it is the only oneyou own. If it is rented, you can make an election to keep it as you rprincipal tax free residence for up to 5 years by stating
"I hereby elect to declare the home at 1234 xxxxx street, anywhere, XXto be my principal residence even though I do not ordinarily inhabitit. If you are just on vacation or trying out another place, theelection is good for 4+1 years. If you were transferred by yourcompany to another city, the election is good for as long as you stayin the transferred employment,
2. Using a room absolutely makes that portion of a house taxable inthe USA. As a consequence, I rarely claim an office in the home on UStax returns. However, in the Fedel Saccomanno case in Canada, it isclear that even renting out two thirds as in a triplex does NOT make ittaxable. see *** below..
3. If the business was incorporated, you can claim up to $500,000 ofprofit tax free,. If the business was a proprietorship, the sale issubject to capital gains tax,
If it was a proprietorship and you are kicking yourself for not beingincorporated, do not get too excited. i almost NEVER let a client buythe business as a corporation because the purchaser gets a lousy taxbreak on the purchase. When selling a corporation the purchase priceis usually dropped about as much as the tax saved by the seller so thatthe purchaser stays even.
In my experience, about the only time a Canadian does get to sell theirCanadian corporation for the tax free capital gain, is when it is a oneor two person software company selling out to a public company whowants control of the asset to raise money on the stock exchange. Andthen, it is likely a $4,000,000 sale with $500,000 or it being tax freeand insignificant in the whole picture.
In 1986, Fedel Saccomanno won the sale of his home as a tax free capitalgain as his principal residence. He had bought a triplex with two unitsrented out, and lived in the third unit with his wife on weekends whenhe was not teaching at the University of Waterloo. When he did not gettenure at Waterloo, and sold the property, DNR tried to tax two-thirdsof the profits. Judge Taylor ruled that the entire triplex was taxfree, giving credence to my claim in my Investment Guide. In theInvestment Guide, I suggest that people with duplexes and triplexesshould claim the whole building tax free in spite of the fact thatBulletins IT 120R2 and R3 stated that half a duplex and two thirds of atriplex would be taxable.
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