Can a person claim a property as a tax free prime residence if they have been living elsewhere for several years. IE widow lets her kid live in her house rent free after she moves in with her male friend. Stupid situation but too long of a story.
Prime residence capital gains question
- Thread starter nobbie48
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Trials
Well-known member
"A capital gain refers to profit that results from a sale of a capital asset, such as stock, bond or real estate, where the sale price exceeds the purchase price. The gain is the difference between a higher selling price and a lower purchase price."
Not seeing a capital gain in your scenario
what was sold and where is the profit?
Not seeing a capital gain in your scenario
what was sold and where is the profit?"A capital gain refers to profit that results from a sale of a capital asset, such as stock, bond or real estate, where the sale price exceeds the purchase price. The gain is the difference between a higher selling price and a lower purchase price."
Not seeing a capital gain in your scenario
If she sells her house is it subject to capital gains since she isn't living in it?
Trials
Well-known member
Is it her declared prime residence now or an investment property?
www.moneysense.ca
8 questions about the principal residence tax rules
Due to recent changes, anyone claiming the principal residence exemption must now prove that they qualify to get such a big tax break.
www.moneysense.ca
If its hers and she has sole title and its her "principal" residence, there is no taxable capital gain. As long as she didnt change her address and had mail sent there she is in the clear. She could slip through the cracks, they never check if you then are buying another house.
However if she changed her address ie: residential address on your tax return .... didnt have mail sent there shes cooked and would be subject to tax. and whopping fines if she tries to skate on the tax.
You need to be careful with this stuff, or more sneaky.
However if she changed her address ie: residential address on your tax return .... didnt have mail sent there shes cooked and would be subject to tax. and whopping fines if she tries to skate on the tax.
You need to be careful with this stuff, or more sneaky.
That's pretty grey. The legal approach is probably "deemed disposition" where the capital gains from purchase until she relocated are tax free. The property is valued at that time. From that point forward, it is an investment and you owe capital gains on the appreciation. Now, she she isn't collecting rent and I would hope her kid doesn't throw her under the bus so if you go with crankcalls theory and avoid any other paper trail, you are unlikely to get pinched.
Hopefully someone can pipe up with a real answer, not guesses.
Trials
Well-known member
I can, hire a really good accountant tax guy.
If you are talking lots of money, they will save you more then the cost to hire them.
Problem is, if you hire a really good tax accountant, which is the smart thing to do, they will not knowing support a bid to skirt taxation.
My guy is a very good accountant and any filing with his name on it is sqeaky clean, its his CA designation on the line. He does however only file on the information provided to him....
Capital gains are a good thing, the taxation is not punishing and only a percentage of what you made. Pay the taxes.
My guy is a very good accountant and any filing with his name on it is sqeaky clean, its his CA designation on the line. He does however only file on the information provided to him....
Capital gains are a good thing, the taxation is not punishing and only a percentage of what you made. Pay the taxes.
Robbo
Well-known member
The fact that she let her kid live in the house rent free is/was a very good decision. That means she could declare it as a Principal Residence and claim capital gains exemption as long as the child continued to live in the house for any part of the year in which the property was/is sold.
This also assumes that since moving in with the boyfriend, she has not claimed a capital gains exemption on any other property sold.
It gets complicated if she owns/owned any other properties, whether solely or jointly held in title.
@nobbie48 you really need to speak to a tax accountant (CPA) as they will ask all the right questions and make sure all your/her ducks are in order. Do this well before selling the property.
I don’t expect anyone wants to read the income tax act section 40(2)(b). A good reference and easier read is www.taxtips.ca . There’s a section on Principal Residence Exemption.
P.S. Please don’t avoid declaring/reporting the sale of a principal residence on your annual income tax return. The fine for failure to report is relatively small (up to a max of $8K). However, they may outright deny your exemption and assess you tax on 100% of the capital gain...then you are in for a costly battle. It’s not worth the risk imho.
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This also assumes that since moving in with the boyfriend, she has not claimed a capital gains exemption on any other property sold.
It gets complicated if she owns/owned any other properties, whether solely or jointly held in title.
@nobbie48 you really need to speak to a tax accountant (CPA) as they will ask all the right questions and make sure all your/her ducks are in order. Do this well before selling the property.
I don’t expect anyone wants to read the income tax act section 40(2)(b). A good reference and easier read is www.taxtips.ca . There’s a section on Principal Residence Exemption.
P.S. Please don’t avoid declaring/reporting the sale of a principal residence on your annual income tax return. The fine for failure to report is relatively small (up to a max of $8K). However, they may outright deny your exemption and assess you tax on 100% of the capital gain...then you are in for a costly battle. It’s not worth the risk imho.
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Last edited:
Is it her declared prime residence now or an investment property?
8 questions about the principal residence tax rules
Due to recent changes, anyone claiming the principal residence exemption must now prove that they qualify to get such a big tax break.
Excellent article, thanks. Basically the lady needs to see an estate planner due to the gray areas. All was much simpler prior to 2016 tax changes.
BTW one of the kids is NOT a poster boy for responsibility. The lady is also up in years. Add that to Covid 19 and seeing an estate planner should be sooner not later.
That was different. We were actually paying those dbags many thousands of dollars to maintain a second residence in Ottawa. Duffy didn't visit his "primary" residence on the east coast for years (and apparently it was a poverty shack in the woods that wasn't even accessible most of the year and lets be honest, he wasn't hiking anywhere). Those scumbags all belong in jail, not in charge of our future.
Mad Mike
Well-known member
I think you hit the nail on the head. The day she moved out would be the last day she could claim capital gains exemption, the Gov't would deem the house disposed on that day at FMV. When she moved back in, the property would be deemed re-acquired at FMV, gains afterward would be tax free. If she kept good records, the cost of financing and maintenance and CCA (only an amount that zeros out rents) is tax deductible on a property that doesn't qualify for capital gains exemption.
From a tax perspective there could be a gooey mess. If she is on title with another property that she lived in while with her male friend, it would be harder to fly under the radar as you can only have one principal residence earning a tax free gain. Furthermore, when she moved back in, the gain during the vacant period becomes reportable and tax due.
As of 2016 you report principal residence on your tax return, Sched 3. If she kept that on her kid occupied house then she can probably fly under the radar.
Don't ask how I learned this!
If she's being added on title on the new place, then the last day of living in the original house is where the exemption ends. She should get a 'assessment' of the value of the property. Once she sells, the value from that day, to the sale date is what will be calculated for tax purposes.
While someone lives there (free or rent), the increase in value will be what is stated on the capital gain section of the tax return in order to calculate the GAIN or LOSS of her capital during the time it is NOT her residence.
Basically if she moves out, kid lives free and she doesn't declare a change in address/primary residence the chance of getting caught are fairly small...but they're there. If he puts that as his primary residence, and so does she...may cause an issue. Especially if he pretends to be paying rent and creates fake invoices for his own tax scheme purposes. It happens.
Personally...I don't like messing around with CRA. I got my tax bill for our rental property...it hurts...but an audit hurts more.
While someone lives there (free or rent), the increase in value will be what is stated on the capital gain section of the tax return in order to calculate the GAIN or LOSS of her capital during the time it is NOT her residence.
Basically if she moves out, kid lives free and she doesn't declare a change in address/primary residence the chance of getting caught are fairly small...but they're there. If he puts that as his primary residence, and so does she...may cause an issue. Especially if he pretends to be paying rent and creates fake invoices for his own tax scheme purposes. It happens.
Personally...I don't like messing around with CRA. I got my tax bill for our rental property...it hurts...but an audit hurts more.
bigpoppa
Well-known member
My dads an accountant, one of his deadbeat clients ran a chain of successful restaurants, he told her to play it straight, pay her little 30-40k in taxes she owed, she didnt, CRA audit and investigation later, she now owes 600k+ and they got her by the balls
That can go either way. I know some people that keep a war chest as they lose less in the audit than they avoided along the way. If you are spending more than you are legally allowed to keep, you are in deep crap.
My accountant told me from the first year we used her...'If you're planning on cheating on your tax...find someone else'
We've used her every year, very happy with her work, and for the money we've spent on her services...no complaints. She saved me 10k this year in capital gains through items she found, and her cost was way less.
Some will.... but they will charge you through the nose for that service.
