I want to sell a property i won

[nihama]

Ok,

I won a bid and now i want to sell it.  Now my question is how much tax do i pay on my profit.  Help

[netpred]

That would depend on whether it is a profit or a gain. If you are in the business of selling property it is profit, and if you hold the property personally, all net profit will be treated as income and subject to income tax. If this is a capital disposition only half the gain will be taken into income.

[Rob]

If it's not your primary residence and you didn't buy the property through a business/corporation then you would pay capital gains 50%.. but can offset the amount by a capital loss perhaps in stocks portfolio.

[Dave2]

If it's not your primary residence and you didn't buy the property through a business/corporation then you would pay capital gains 50%.. but can offset the amount by a capital loss perhaps in stocks portfolio.

Rob:

The advice I got was it was a little more complicated then that.  A key issue is volume of sales activity and this applies for both HST and whether profit on sale of property is treated as a capital gain or as income.

Ignoring principal residence and surrounding 1 hectare of land (More land then that and it is not part of your principal residence.), for one or possibly two sales you can probably avoid HST and an income claim. (i.e. you can claim capital gains.)

At three sales according to my advisor I am deemed as being in the business of buying and selling land, and I have to charge HST (except for an exempt property) and I have to treat any gains as income not capital gains.  

Even when I did all that I still got singled out for an audit. LOL.

  

[Frank]

It does indeed depend on a number of factors.  A number of years ago one fellow who built a new home every year and claimed each of them ad principle residence got nailed.  He had no other source of income, and actually lived in another house the whole time.  They rejected his claim and levief full taxes on his profit  as they deemed house building to be his business.  Adding penalties then left hom with nothing.

[ChrisCentral]

I have a question, which maybe open ended but non the less:

I'm interested to hear thoughts on personal operation or incorporation of bussiness when buying and selling tax sale properties

Thanks to the pro's in advance for your thoughts and comments.

[Dave2]

I'm interested to hear thoughts on personal operation or incorporation of bussiness when buying and selling tax sale properties

Thanks to the pro's in advance for your thoughts and comments. 

Chris:

Other then a couple of rather obvious observations I for one do not consider myself a pro in this area particularly as it depends a lot on the particulars of each person's invidividual tax situation.  You need a professional to really give you a proper recommendation because the professional will have access to your personal financial data. That being said a couple of observations. 

A lot depends on volume and what is your purpose.  Buying a recreational property for own use through a tax sale is far different then trying to buy many in a year for development and resale. 

The type of property is also a consideration as if you are going to buy derelict houses and rennovate them you may want the limited liability value of a company as distinct from unlimited personal liability. 

Finally remember there are other ways to potentially spread your tax burden around.  For example I don't believe there are any restrictions if you win a tax sale to whose name you register it in.  On resale who reports the income is an interesting issue for an accountant to answer. 

Of course it also depends on your relationship with your significant other if you have one.  It would appear I for one have a little to learn in this regard as mine
is not afraid to tell me which she will participate in and which is mine by myself. 

[g2020]

I also do not consider myself a pro, but us seniors are both risk adverse and very very cheap when it comes to a tax sale hobby. Firstly with respect to risk, as Dave2 mentioned, this is very important. By taking title through a corporate entity you avoid exposing your other personal assets to the risks of owning uninsured property. It is very difficult, or impossible to get full insurance on unoccupied building os vacant land. By taking title in a numbered company you usually avoid having someone sue you. Yes, a numbered company, not a company with a name, because the fact that you are too cheap to spring for the few extra dollars for a name, indicates to the the legal community that the company probably has no assets, so even if they won, they would lose. If you do incorporate you should do so only after understanding the costs, both one time and ongoing. Your library will have a self help book for you to do your own incorporation - it will help you understand the process, even though you will probably buy the numbered corporation over the Internet since for a very low price they supply the minute book, seal (if you even want one), and all the forms.
Secondly, with respect to keeping evert cent of profit possible, incorporation has advantages for some of us. The implication from Dave2 is that sale of property by a corporation is always fully taxable, whereas sale of property by an individual may sometimes give rise to just a capital gain. That is not my experience. The last time that I was audited I had no problem with claims for just capital gains on some tax sale properties. They accepted the capital gains argument on property that was purchased on tax sale for the purpose of earning rental income. The key point is your intention at the time of purchase, not how title is held. I do appreciate how complex this is since when you sell an income producing property you would be subject to recapture of capital cost allowance, but to some of us, deferral of income tax is almost as good as paying no income tax. Those of us who pay income tax at the minimum tax rate have a further advantage when we sell tax sale capital property held in a numbered company. If you flow all your net corporate profits through to you each year then your maximum tax rate on the sale of income property would only be 11% instead of the minimum tax rate on personally held capital gains which works out to about 17%. Of course for most of you the numbered company would just be allowed reasonable deductions and a tax deferral due to the small business rate. I do not want to over simply things, but hopefully this gives a couple of more things to think about. If you are ever fortunate enough to buy one good tax sale property that can be operated from the beginning as a business then you too can hit the mother lobe. If you then sell the business with the property/business in it, then you can utilize you $750,000.00 life time capital gain deduction. Likewise if you buy a farm at tax sale with the purpose of operating it as a farm, then when it is sold you can perhaps utilize some of the lifetime capital gains deduction (1.5 million for you and your spouse), but in this case the farming business does not have to be incorporated to get the deduction. In my case the shares of the numbered company were owned by my wife, myself, and my daughter and the business was profitably operated for a substantial period of time. The sale of our tax sale farm was also operated profitably for a substantial period of time, but for liability reasons, the farm was owned in a separate corporation. Yes, there may be reasons why just one tax sale corporation is not enough. It is also possible to have too many, and I just filed articles of dissolution to get rid of two that are no longer required.
Here is the problem. There are good income tax advantages for having a corporation to take tile to your tax sale purchases. Unfortunately there are almost as many HST disadvantages to buying your tax sale properties through a corporation.
My suggestions are;
1) if you are elderly do not buy tax sale property (my grandson's may consider me old, but I am certainly not elderly),
2) if you have a high net worth then, when you buy the first tax sale that makes you a little nervous, buy a corporation to take ownership,
3) if you do not yet have much money, forget the corporation and flip the property. Hopefully you then fall into the category 2 above, incorporate and become an HST registrant like big bucks Dave2.
Best of Luck

[DRD]

With all this talk I am curious about current rules on how long do you have to live at a property (principal residence) to be exempt from capital gains.

Thanks in Advance

Doug

[g2020]

Good question. There is no specific rule. Each case is judged on it's own merits. For instance, if you bought a property and only lived there for a few days and had to sell because you were transferred to another location, then any gain or loss would be considered capital in nature. It would be exempt from tax provided that you designated it your principal residence, and were not designating a cottage as your principal recreation property during the same period of time. The onus is on you to show that the property was not purchased as one of a series of transaction to make a tax free gain. If you purchased your home or cottage on a tax sale, but you have purchased it to live in, albeit at an attractive price, then when you eventually sell it and designate it as your principal residence or principal recreation property, then any increase in value during the designated period should be tax free. In situations such as this it is best to go to the CRA web site and look for "interpretation bulletins" on the topic. Keep in mind that if you are an HST registrant and did not self assess and pay any HST due then it would be difficult to argue later on that you built, or substantially renovated a residence on the property without your primary objective just being resale at a profit. We have retired to our cottage and any increase in value for the period that we are retired here will be tax free, but the period before retirement will not be, because during the prior period of ownership we had designated our city house as our principal residence. You and your spouse can only designate one during any period of time. If you have both a city home and a cottage then it is up to you to figure out which designation is most financially beneficial to you. I know you want an exact number so here goes. The average person moves every 5 years (get the exact number). It is acceptable to have a secondary objective as profit. Try and keep your property for 5 years and you should be safe, especially if you can establish a reason for your change of residence other than a series of profitable flips. The reason becomes even more important if you are in the renovation, building, or real estate industry. I hope this is a good start, and perhaps others may have specific experience or can direct you to court cases on the CANLII web site where The minister of Finance is not happy with someone's designation.
Oh, it is possible to have more than one principal residence tax free but the overlap period for tax exemption is just one year. This is to allow you time to sell your current home and make the tax sale shack livable.

[Frank]

It does indeed depend on a number of factors.  A number of years ago one fellow who built a new home every year and claimed each of them ad principle residence got nailed.  He had no other source of income, and actually lived in another house the whole time.  They rejected his claim and levief full taxes on his profit  as they deemed house building to be his business.  Adding penalties then left hom with nothing.

g2020 is quite correct in that there is nothing hard and fast about how you will be assessed.  Take the above previously mentioned example.  Now take the example of another friend of mine, who had a full time job at one of the steel mills, but being an enterprising lad he knew how to build houses, so every four or five years, as he completed another one he would move in and sell off the one he built four or five years ago for a nice profit (both from a real estate market perspective and recouping of his sweat equity and know-how).  This was perfectly acceptable from Rev. Can's perspective. 

ps...they don't tax lottery winnings in Canada, but I'm pretty certain that the CRA will be taking a hard look at the value of those beers that Dave keeps giving away.

[DRD]

Thats what I thought   lol    Thanks for the organized confusion

brother moving into a tax sale as current residence is being torn down and rebuilt/replaced...
(both in his name)

[Dave2]

brother moving into a tax sale as current residence is being torn down and rebuilt/replaced... (both in his name)

Doug:

Congratulations on the win for your brother.  Just a suggestion on HST that depending on the particulars you see if an exempt supply can be obtained for the tax sale and depending amount of rennovation you can retain it on eventual resale.

Obviously if it is demolished you will not be able to claim it.