Buy through a corporation!

[-]

Corporations have a generous Capital Gain Exemption, why not use it to your advantage?

Incorporate a numbered corp. and open a cheap account with a credit union or bank.  Meridian has accounts for $5 per month.

nr

[speedfreeksteve]

I own a corporation myself. Yes you can save on capital gains, and you could be able to write off expenses such as gas in the process of researching these properties as long as you keep good records.

The downside is that it's not for everyone. The cost of hiring an accountant that is qualified to do a corporate tax return is not cheap. I'm sure that in itself would make it less worthwhile for some people.

You don't need to go to a credit union for a cheap business account. The major banks have business accounts for corporations for as low as $10/month.

[Vanmac]

Thanks for the good advice 

[Frank]

Being able to write off all of your expenses is the up-side to buying through a corporate entity.

However, if all that your company does is buy and sell tax sale properties, then Revenue Canada will deem that that is your business, and you will be subject to full taxation on the entire profit margin (less the stuff you're able to now write off (which is is incidental).

[atorrin]

Where would I go online to find out what can be written off? If a property is fixed up and then resold can the cost of the renovations be deducted?

[Bobby]

Cost of fixi up and renovation cost can be added to your ACB adjusted cost base, example if you have purchased a proerrty for  $50,000 and cost of renovation is $15000 and selling exoeses are $5000 and you sold this proerty for $100,000

your gain or profit from adventure in nature of  trade  depends how you treat your deal eiither capiital or business would be

     Proceed of Dispostion  (Sale)       $100,000
Less:   Cost of proertry    $50000
          Renovation            15000
          Selling expenses       5000

Revised ACB                                    $70000

Gain or profit                                  $30000

If you are going to treat this as income that full $30 K is taxable and if you are going to treat this as capital than taxable capital gain is $15000.. keep in mind that taxable capital gain can be offset against any current or previious year capital losses and capital losses can be carried forward indefinately..

You can get more informaition on captial gain and losses from CRA website and theri gudies..
at  www.cra.gc.ca

[landfanatic]

The bext thing for anyone looking to make money on flipping properties in canada is to create a US corporation. I opened up a Florida LLC. LLC's in the states pay 0% corporate tax and are taxed through the owners. Florida does not have any personal state tax, you only pay Federal. which is dirt cheap. Open up the FLorida LLC, purchase the land or property in Canada under the Florida LLC and offer private Owner Financing when selling. I'm sure revenue canada will be knocking on my door in about 30 years, but until then, they can stick it where the sun dont shine.

[speedfreeksteve]

The bext thing for anyone looking to make money on flipping properties in canada is to create a US corporation. I opened up a Florida LLC. LLC's in the states pay 0% corporate tax and are taxed through the owners. Florida does not have any personal state tax, you only pay Federal. which is dirt cheap. Open up the FLorida LLC, purchase the land or property in Canada under the Florida LLC and offer private Owner Financing when selling. I'm sure revenue canada will be knocking on my door in about 30 years, but until then, they can stick it where the sun dont shine.

Risk going to prison to save a few bucks on taxes? I'll pass on that one.

I won't bother explaining why your plan there wouldn't come close to passing an audit.

Forming a Canadian corporation is a decent way to LEGALLY save on taxes, mainly by allowing you to write of more expenses. I've paid over $400k in taxes since I was 15 years old, so I'm not big on people that think they shouldn't pay their fair share.

[atorrin]

Ok - so whether it's treated as regular income or as a capital gain I can still write off the expenses?

In what circumstances should it be considered regular income versus a capital gain?

[Frank]

Speed is correct again.  I wouldn't try to save the nickle and have it cost me a quarter.

As a Canadian citizen, you are taxable on your world wide income.  Of course Revenue Canada would have difficulty discovering income from Florida - but if it does, and you have bothered to disclose it, then you are toast my friend.

[Frank]

Oh, and by the way, they probably just read your post, and will be looking for you.

I've paid my fair share of taxes as well, and even though I know that some of it goes to causes that I don't condone, I take exception to people trying to evade paying theirs.  There is a difference between ' tax avoidance and deferrals' and 'evasion'.

[speedfreeksteve]

Ok - so whether it's treated as regular income or as a capital gain I can still write off the expenses?

In what circumstances should it be considered regular income versus a capital gain?

Capital gains are taxed as income except at a 50% rate. So basically if you're in the highest tax bracket of around 49%, you'll pay about 24.5% on any captital gains including selling stocks, land, or whatever.

On the other hand if land is held by a corporation, and assuming that the corporation has no other income you will pay less tax since the corporation's income is not part of your own. The trick though is that you will want to keep the money in your corporation. Eventually you will need to pay yourself from the corporation and claim it as personal income but hopefully by then you could be retired and not in a high tax bracket. You can also write off a number of things as necessities in the course of your corporation doing business.

This isn't something I would recommend to try and save money on a couple of "one shot" real estate deals. There are a number of fees associated with setting up and running a corporation. But if you do plan on actively buying and selling properties over a span of years than it could be worthwhile to you.

[atorrin]

Ok - I'm not thinking of a corporation, at least not at this point.  But what I'm trying to figure out is whether one or two flips a year should be classified as a capital gain or business income? My husband has a sole proprietorship (unrelated business) which is what I was thinking of in terms of business income. But capital gains are treated so much better, why would we declare it as business income?

[Frank]

Whether it is incorporated or not is not necessarily the distinguishing factor between income and capital gains.  The benefit to incorporation is that you can run it as a business, and pay full taxes (which are at a lower rate), and write off some incidental expenses which you would otherwise not be able to.  The down side is that if you don't keep the money in the corporation, then the rest of the tax will be payable by you on the dividend income - net result is the same.  However, if it is a capital gain then the tax is half. 

If it is truly a one-off then it is likely a capital gain.  However, if you are doing one or two flips per year then it is most likely a business - regardless of what your other business endeavours are.  You need to discuss the particulars of your situation with a good tax accountant who can advise you on the implications of your actions are.  They will look at all the applicable cases that came before, and likely there will be ones that side in your favour and those that say you are hooked.   On the other hand, you might claim it as capital gain and if you are never subjected to an audit, then you might get away with it.  If you do get audited, you will liable to the full tax and a penalty - is it worth it, you decide.