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Transcript of 1 CGA-BC TAXATION OF REAL ESTATE Richmond Chapter December 2012 Don Nilson.
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CGA-BC
TAXATION OFREAL ESTATERichmond Chapter
December 2012Don Nilson
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Nilson & Company, Professional Accountants, was established in 1979 and provides accounting, tax and business advisory services to individuals and businesses, as well as fee-based personal financial planning.
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A.F.T. Trivest Management Inc, Investment Counsel, was registered with the B.C. Securities Commission in 1993 and provides investment management services by applying Accounting, Finance and Taxation principles to portfolio management.
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www.investoru.ca www.nilsonco.com
This symbol indicates a relevant article on our
websites
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www.nilsonco.comwww.investoru.ca
My regular column:
http://www.nilsonco.com/CMABC_update.htm
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OTHER COURSES OF INTEREST
10 Commandments of a True ProfessionalTaxation of Investment IncomeWealth Management PrimerFinancial Planning PrimerEstate Planning PrimerAnnual Tax UpdateIncome Splitting from A to ZTFSAsUsing Tax Returns as a Roadmap to Financial Planning
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Strategic Planning
Practitioners’ Boot Camp Retreat– 3 days/ 2 nights– Harrison Hot Springs– Oct 25-27, 2013
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ABOUT THE PRESENTERAfter completing a BCom with an accounting
major at UBC in 1976, Don articled with a large international accounting firm before
starting Nilson & Company in 1979. During his articling period, he gained experience auditing
large, sophisticated accounting systems as well as smaller private businesses.
Don returned to university in 1980 to complete a Master's degree. His 100 page thesis, entitled
"Income Taxation of the Small Business Sector in Canada" provided a valuable insight
to taxation in Canada and other countries.Don attained his professional accounting
qualification in 1981, his financial planning designation in 1998 and his Trust & Estates
designation in 2006. He has been licensed as a Portfolio Manager with the BC Securities Commission since 1994.
Don Nilson
BCom MSc(Bus Admin) CMA FCMA TEP
CFP Fellow of FPSCTM
Registered Portfolio Manager
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ABOUT THE PRESENTERSince 1980, Don has lectured in accounting
and tax topics for the University of BC, the Society of Management
Accountants, the BC Real Estate Association, the Canadian Institute of
Financial Planners and the Certified General Accountants Association. He presently delivers the Taxation 1 course
on the internet across Canada and internationally for CGA Canada. He has
been involved in developing national exams and curricula for the professional
accounting bodies. Don has delivered seminars on practice management,
financial planning and taxation issues across professions throughout Canada
and in the U.S.He has participated in the Press lock-ups of
the federal and provincial budgets.He writes and edits quarterly newsletters on
tax and financial planning and on investing. He is on the Editorial Board of
a professional publication and has a regular column therein.
Don oversees the day-to-day management of both firms. His primary focus is business
advisory services, corporate and personal tax, investment management
and business year-ends.
Don Nilson
BCom MSc(Bus Admin) CMA FCMA TEP
CFP Fellow of FPSCTM
Registered Portfolio Manager
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ABOUT THE PRESENTERDon has served on the National Boards of
the Financial Planning Standards Council and CIFPs, and as Chair of
the CMABC Public Practice Licensing Committee.
Don currently serves on an Editorial Board and is national Treasurer of the
Canadian Association of Professional Speakers.
Don has received career achievement recognitions from the University of
British Columbia, the Sauder School of Business, the Certified
Management Accountants of Canada, the Certified General
Accountants Association of BC, the Financial Planning Standards
Council of Canada and the Certified Management Accountants of BC. These awards have recognized his
contributions to leadership, teaching, volunteerism, the university community and the financial
services industry. Don Nilson
BCom MSc(Bus Admin) CMA FCMA TEP
CFP Fellow of FPSCTM
Registered Portfolio Manager
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Can FPA
Canadian Federation of Progressive Accountants
www.canfpa.com
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Today’s mission
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Survey feedback
Please take just a minute to tell us what you thought of the course:
http://fluidsurveys.com/surveys/don-nilson/cga-richmond-real-estate/
Or link off the Fyi seminars webpage:
http://www.nilsonco.com/events.htm
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LIST OF TOPICS
The pinball machine
Tax rates
Owner structure
Rental income
Capital gains
Reserves
Corporate tax issues– Property income– Capital gains
Principal residence– Change in use
Recreational property
Checklist
All-Day course!
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STRUCTURE OF THE TAX ACT
LESSON 2 LESSON 3 LESSON 5 LESSON 6 LESSON 5
EMPLOYMENT BUSINESS PROPERTYCAPITAL
GAINSOTHER
CERTAIN CERTAIN CERTAIN CERTAIN CERTAIN
DEDUCTIONS DEDUCTIONS DEDUCTIONS DEDUCTIONS DEDUCTIONS
SUM =
DIVISION B
INCOME
MINUS
DIVISION C LESSONS 7 & 8DEDUCTIONS
=
DIVISION C aka TAXABLE INCOMEINCOME
TIMES
TAX RATES
MINUS
TAX CREDITS
=
TAX PAYABLE
OJ
aka NET INCOME
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CAPITAL GAIN vs. BUSINESS INCOME
Taxpayer’s original intention
Feasibility of intention
Extent to which intention is carried out
Change of intention
Geographical location and zoned use..
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CAPITAL GAIN vs. BUSINESS INCOME
Nature of asset
Nature of taxpayer’s business
Use of borrowed money
Length of time the Real Estate was held
Extensive dealings with Real Estate
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CAPITAL GAIN vs. PROPERTY INCOME
CONCEPT of the fruit and the tree
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INCOME FROM BUSINESS OR PROPERTY?
Irrelevant:–Being incorporated–The size or type of the building–The number or properties–The degree of furnishings–Hands-on vs delegated effort
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INCOME FROM BUSINESS OR PROPERTY?
Relevant:–“Incidental” to business, eg excess
space–Turns on the “services” you provide –
beyond mere rental of property, eg• Residential – food, lounge, maid services• Commercial – janitorial, security
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INCOME FROM BUSINESS OR PROPERTY?
Significant impact on:– “Earned” for child care– Attribution– Allocation across
provinces in which situated
– Impact for non-resident
– Array of deductibles– Fiscal year reporting– Loss restriction on
CCA– CNIL for capital
gains freebie– Tax rate (for corps)
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PASSIVE TAX RATES
Individuals– Of course – marginal rates!
Private Corporation– Generally passive
• Presently approx 45%– Subject to Part 1 refundable and dividend refund
• May be at ABI rate– If HoldCo/OpCo situation (later)
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PASSIVE TAX RATES
Private Corporation– “Specified investment business” SIB
• Denies small business rate; thus taxed at passive rates, with RDTOH on Part One tax
• Exception if > 5 F/T employees
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2012 PERSONAL RATES
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2012 BC INVESTOR TAX RATES
Taxable
income
< $37013 $37014-
42707
$42708-74028
$74029-
84993
$84994-85414
$85415-
103205
$103206-132406
>
132406
Interest/
Rents
20.1% 22.7% 29.7% 32.5% 36.5% 38.3% 40.7% 43.7%
Capital Gain
10.05% 11.35% 14.85% 16.25% 17.15% 19.15% 20.35% 21.85%
Ineligible
Dividend*
4.1% 7.5% 16.2% 19.7% 22.0% 27.0% 29.9% 33.8%
Eligible
Dividend*
0%
-6.6%
0%
-2.9%
6.7%
10.6% 13.0% 18.7% 21.9% 26.2%
* % of cash amount
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2011(12) CORPORATE RATES-BC
Private corp-active under $500,000 SBD limit
Private corp above SBD limit $500,000 and big corp
Passive
13.5% (13.5%)
26.5% (25.0%)44.66% (44.66%)
As of Dec 31/xx
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OWNERSHIP STRUCTURE
Personal– Calendar reporting– Strategic issue re claiming CCA
• Discussed later
– For a couple – who buys it?• Short vs long term implications
– Income/loss/gain/tax brackets– Loss carryforward? Being smart!
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OWNERSHIP STRUCTURE
Personal– Buying houses for kids– Title issues
• Principal residence issues
– Security issues• Prom note? Second mortgage?
– Marital risk issues… Being smart!
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OWNERSHIP STRUCTURE
Personal– Buying houses for kids
• Estate issues and equalization
– Joint tenanting parents’ home with kid(s)• Probate dodging
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OWNERSHIP STRUCTURE
New SCC cases re joint tenancy strategy (Pecore) (and Saylor Case)– In absence of clarity of intention-– “Presumption of advancement” is limited to
gratuitous transfers from parents to minor children
– Elsewise, burden of proof is on transferee to prove a gift was intended…
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OWNERSHIP STRUCTURE
– Evidence of intent inferred from bank documents, the actual control and use of the asset, the bearing of related taxes, or granting Power of Attorney
– Better: a signed Declaration of Intent to clearly outline transferor’s intentions
– Codicil to will– Valid for both new and existing
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OWNERSHIP STRUCTURE
– Joint tenanting• May use up kid’s principal residence
designation, or• May expose half the house to appreciation tax
if the kid already has a p.r.• Knock-on effect
– Precludes PTT exemption on subsequent first home purchase
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STORIES FROM THE TRENCHES
Daughter put on parents’ title
Subsequently bought own p.r.– Claimed PTT exemption
Then sold that p.r.– Audited for invalid PTT exemption– Assessed, with DOUBLE penalty
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RENTAL INCOME
CCA
Interest
Property taxes
Landscaping
Legal
Supplies
Property management fees
R&M
Financing costs
Utilities
Accounting
Travel
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RENTAL INCOME
Purchase cost– Includes Property Purchase Tax and
conveyance costs
Purchase of furniture and equipment
Improvements or major renovations
Apportionment of land and building
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RENTAL INCOME
Repairs– Short-term benefit– Maintenance– Integral part of asset– Minor in relation to value– After purchase of used property– Made regardless of sale of property
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RENTAL INCOME
Renovations – Enduring benefit– Improvement or betterment– Separate asset– Major in relation to value– At time of purchase of used property– Made in anticipation of sale
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RENTAL INCOMELandscaping– Specifically deductible in ITA
Roofs/decks (Lewin case in Tax Court)– Betterment or repair?
Legal re purchase/sale– Capitalized
Financing costs– 5 year straight line
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RENTAL INCOME
Travel– Auto, if conducting repairs
• But not, for travel to locale outside general area of your home
– Unless you own multiple properties• Then also legit for collecting rents, supervising
and managing the property– And between locales, if at least 2, which are different
from your general area
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RENTAL INCOME
Travel expenses– 2008 Court case
• Allowed motor vehicle expenses for several trips from Canada to Florida rental property for property management reasons
• ITA suggests no auto unless:– More than one rental building which are– In at least two different sites
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PROPERTY INCOME
Rental income– Court Case on rental accepted different %
splits of different kinds of expenses in a rental suite situation
• Eg security, gardening, snow removal
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RENTAL INCOME
Interest– The old trace-ability issue– Interest deductibility test is income from
business or property– Turns on answer to the question:
• What did you do with the borrowed funds?
– Issue with change-in-use property• Refinancing to new principal residence
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RENTAL INCOME
Existing mortgage = $300,000
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RENTAL INCOME
Existing mortgage=$300,000
Extra mortgage=$200,000
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CAPITAL COST ALLOWANCEClass 1 – 4%
Class 3 - 5%
Class 6 -10%
Class 8 - 20%
Class 13 -varies
Class 17 – 8%
Buildings after 1987– See over
Most buildings before 1988
Frame buildings before 1988
Furniture & Fixtures
Leaseholds
Pavement
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CAPITAL COST ALLOWANCE
For additions on or after March 19, 2007– Cl 1b Non-residential buildings in separate
pool at 6%– Cl 1a Manufacturing buildings in separate
pool at 10%– Permissive/elective
• No late-filing permitted
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CAPITAL COST ALLOWANCE
Separate pool for RENTAL property >$50,000 cost
Multiple units in condo bldg/row-housing constitute a pool together if > $50,000 in aggregate (IT274R para 3)
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CAPITAL COST ALLOWANCE
Rental loss restriction– Cannot increase or create a rental loss by
claiming CCA– Applied on a pooled cash basis
• Including any recaptures (technically, elective) and terminal losses (mandatory) on dispositions
• means must do disposition calculations first
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CAPITAL COST ALLOWANCE
Half year rule
Class 13 tricks– By lease year addition– Minimum 5 years
Deferment of CCA under “available for use” rules
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CAPITAL COST ALLOWANCE
Permissive!!
Does today’s CCA write-off become tomorrow’s recapture?– For individuals
• Deferral– Clear advantage
• Rate (dis)advantage? – Maybe DISADVANTAGE
» Lumpy!!!
Being smart!
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CAPITAL COST ALLOWANCE
Time value of money
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…versus…rate
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CAPITAL COST ALLOWANCE
Does today’s CCA write-off become tomorrow’s recapture?– For corporations
• Deferral– Clear advantage
• Rate (dis)advantage – Likely neutral!
• Suggests go-for-it
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STRUCTURE OF THE TAX ACT
LESSON 2 LESSON 3 LESSON 5 LESSON 6 LESSON 5
EMPLOYMENT BUSINESS PROPERTYCAPITAL
GAINSOTHER
CERTAIN CERTAIN CERTAIN CERTAIN CERTAIN
DEDUCTIONS DEDUCTIONS DEDUCTIONS DEDUCTIONS DEDUCTIONS
SUM =
DIVISION B
INCOME
MINUS
DIVISION C LESSONS 7 & 8DEDUCTIONS
=
DIVISION C aka TAXABLE INCOMEINCOME
TIMES
TAX RATES
MINUS
TAX CREDITS
=
TAX PAYABLE
OJ
aka NET INCOME
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CAPITAL GAINS
Capital properties–Types:
• Personal use property “PUP”• Listed personal property “LPP”• Business investment property “BIP”
• The rest “REST”!
Real estate could be either PUP or REST
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OPERATION OF SEC 3B
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CAPITAL GAINS
NB Implications of losses on PUPs (recreational property)
NO GOOD! Ouch
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CAPITAL GAINSInclusion rate– Historical background
• Tax-free pre 1972• Taxed at inclusion rates beginning 1972
– 1972-1987 - 1/2– 1988-1989 - 2/3– 1990-2000 - 3/4– 2000 – multi, ending at ½ at end of 2000– now - 1/2
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CAPITAL GAINSP.O.D.
- A.C.B.
- D.C.
= C.G or C.L.
x INCLUSION RATE
= T.C.G.
or
(A.C.L.)
Proceeds of Disposition
- Adjusted Cost Base
- Disposal Costs
= Capital Gain/Loss
x Inclusion Rate
= Taxable Capital Gain
or
Allowable Capital Loss
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Example of Treatment of Disposals
Assume: Original cost=$10,000and U.C.C.=$8,000
Sold for $6,000
Answer – Terminal loss of $2,000
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sold for $11,000** Apply only original
cost
Answer – Recapture
$2,000 &– Capital Gain
$1,000– What is the point
here?
Example of Treatment of Disposals
Assume: Original cost=$10,000and U.C.C.=$8,000
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CAPITAL GAINS
Buildings and subjacent land– tricky re-allocation of
POD to reduce a terminal loss
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CAPITAL GAINS
Buildings and subjacent land– Report land & building separately
• Latter may have recap/terminal loss
– ITA doesn’t like terminal loss on building and capital gain on land:
– Causes arbitrary reallocation of P.O.D.
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Subjacent problem: exampleFact pattern
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Subjacent problem: exampleSolution
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Subjacent problem: exampleSolution - amended
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RESERVESOn vendor take-back financing– Remember reserves on business income
• Similar BUT DIFFERENT!– Can spread taxation of gain over, up to, 5
tax years• 2 part calculation annually
– Calculation has two parts• Mini play-off system applied EACH YEAR
– Long term deferral shut down since 1981• Can’t spread recapture
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RESERVESNot available to non-residents, or emigrants– Reserve disallowed for emigrants in year
prior to departure as wellNot available in transactions between related partiesRemember: this is permissive
year-by-year
Being smart!
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RESERVESFred has received an offer to sell a parcel of land for proceeds of $1,000,000. The proceeds are payable as $400,000 cash on closing and $100,000 in each of the subsequent six years. Interest would be paid at 9% on the outstanding balance. The land was acquired for $200,000.
Required: Calculate the tax implications over the six years, assuming that the land is a capital property.
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RESERVESYear 1 POD 1,000,000
ACB 200,000
Capital gain 800,000
Reserve lesser of:
Reserve 800 x 600/1000=480
800 * 4/5 = 640 -480,000
Capital gain 320,000
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RESERVES
Year 2 Opening reserve 480,000
Reserve 800 x 500/1000=400
800 * 3/5 = 480 -400,000
Capital gain 80,000
Year 3 Opening reserve 400,000
Reserve 800 x 400/1000=320
800 * 2/5 = 320 -320,000
Capital gain 80,000
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RESERVES Year 4 Opening reserve 320,000
Reserve 800 x 300/1000=240
800 * 1/5 = 160 -160,000
Capital gain 160,000
Year 5 Opening reserve 160,000
Reserve 800 x 200/1000=160
800 * 0/5 = 0 0
Capital gain 160,000
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CORPORATE TAX ISSUES
Managing income from property
Managing capital gains income
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74 74
Taxation of Passive Income
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CORPORATE TAX ISSUES
Managing income from property– Taxed at special passive rate if private
corp• 45.16% at December 31/10• 44.66% AT December 31, 2011
– Subject to refundable Part 1 into RDTOH– And dividend refund out of RDTOH…
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CORPORATE TAX ISSUES
PASSIVE: Private corps only– “Refundable dividend tax on hand” account
• “RDTOH” pot captures two unrelated things– PART I REFUNDABLE @ 26.66%
» All property income except dividends plus» Taxable capital gains
– PART IV on dividends @ 33 1/3%
– Relieved by dividend refund at 33 1/3%
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77 77
Taxation of Passive Income
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CORPORATE TAX ISSUES
Corporate tax issues– Managing income from property– Managing capital gains income
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79 79
Taxation of Passive Income
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CORPORATE TAX ISSUES
Capital gains–Capital dividend account: private corps only–Partitions
• Excluded portion of net capital gains• Ditto re sale of ECE• Life insurance proceeds• Capital dividends from subs
–Less payments made–Procedures and tricks
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CORPORATE TAX ISSUES
Capital gains– Capital dividend account: private corps only– Triggered gain creates and monetizes a CDA
opportunity• Flow tax free $$ out to shareholders to pay off
non-deductible debt• Perhaps then to follow with re-
mortgaging as deductible debt and
shareholder loan– Watch mortgage payout penalties Being smart!
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82 82
Taxation of Passive Income
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CORPORATE TAX ISSUES
Also taxed on one half at the corporate passive rate, circa 45%, therefore 23% on the whole gain
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CORPORATE TAX ISSUES
PASSIVE: Private corps– “Refundable dividend tax on hand” account
• “RDTOH” pot captures two unrelated things– PART I REFUNDABLE @ 26.66%
» All property income except dividends plus
» Taxable capital gains
– PART IV on dividends @ 33 1/3%
• Relieved by dividend refund at 33 1/3%
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Taxable income
Active Passive
Canadian dividendsInterest, rents, royalties,
taxable capital gains
Part IV tax- 33 1/3%Part One refundable
26 2/3%Passive rate – 45.16%
ABI rate- 13.5%
RDTOHDividend refund
33 1/3%
Sched 7
Private Corps!
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PRINCIPAL RESIDENCE
Some form of housing unit– House, apartment, condo, cottage, mobile home, trailer or
houseboat– Including leasehold interest in same– Including share in capital stock of coop
Ordinarily inhabited: the one night stand?– By self, spouse, former spouse or dependent child
• Child under age 21, or else infirm or in school
“Designated”- not formally required year-by-year!– One per couple post-’81
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PRINCIPAL RESIDENCE Size limit– ½ hectare routinely ok – If bigger, ok if:
• Zoning re minimum lot size• Required re access from public roads
Incidental income– Basement suite (reporting?)
If Canadian resident but abroad– Includes property off-shore
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PRINCIPAL RESIDENCE
Condos-in-progress– Ownership does not pass until the condo is
provincially registered (IT 437R)– Ergo, P.R. designation not available– What about sale of right?
• CRA says no P.R. for same reason– May be challenged?– Will be topical these days!
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PRINCIPAL RESIDENCE
Vacant land– Fails the “inhabited” test while unused or
during construction– Can lead to partial exposure to capital
gains on sale, under the “1+” rule – See example later
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CHANGE IN USE
Is a deemed disposition– To rental from principal residence
• Non-taxable to taxable• Establish FMV at change date
– Any gain is tax-free to that point under P.R. designation
– Mark-to-market at FMV establishes ACB forward as taxable investment property
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CHANGE IN USE
Is a deemed disposition– To principal residence from rental
• Taxable to non-taxable• Establish FMV at change date
– Any gain is taxable to that point – Mark-to-market at FMV establishes ACB forward as
tax-free principal residence
• Creates tax liability without cash flow!...
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CHANGE IN USE
Alternate is to elect no change-in-use– This defers - but does not eliminate – the
gain on deemed disposition– Cash flow issue often snares you! – Leads to the 1+ rule…
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CHANGE IN USE
The 1+ rule determines the tax-free gain proportion:
1 + # years P.R. designated*
# years owned**
*and Canadian resident
**any part of a year
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CHANGE IN USE
Taxpayer acquires and moves in 1990
Moves out 1996-2000 – no election
Sells the principal residence in 2008
Capital gain =
P.R. relief equals 1+14 divided by 19
Capital gain
$65,000
$167,000
$102,000
-$80,526
$21,474
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CHANGE IN USE
4 year rule– To principal residence from rental
• 45(2)
– To rental from principal residence• 45(3)
4 year rule works both ways– No CCA!
NB: It makes available the property for P.R. designation…
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CHANGE IN USE
Latter (45(3)) not well known
Not claiming CCA is tricky in latter case… if you didn’t know about the rule or your own future plans
Rule extended indefinitely under 45(1) if transferred re job (arm’s length)
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CHANGE IN USE
CHANGE
IN
USE
YES
P.R. to rental
Rental to P.R.
Deemed disposition
FMV establishes ACB for future taxable gain
FMV establishes POD for taxable gain - $$!!. Free fwd
No“1+ rule”
Provides OPTION to elect p.r. years in future upon (first) disposal
45(2)
45(3)
Options 4 p.r. years back
Options 4 p.r. years fwd
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CHANGE IN USE
Electing out of change-in-use from rental to p.r.– The downside of change-in-use is $$
owing– The downside to the 1+ route on 45(2):– Each add’l year of P.R. designation, the
free fraction gets bigger and thus the taxable fraction gets smaller BUT potentially on a large(r) gain, eg 30+ years!
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CHANGE IN USE
T2091– P.R. designation form
• Very clear! Fill in the numbers!
– Not required until a disposition occurs which requires designations
• i.e. when there are multiple eligible properties
– Also when an ACG had been used prior
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VACANT LAND
Taxpayer acquires vacant land in 1998Completes $100,000 construction IN 2001 and commences to occupy the house as a principal residenceSells the principal residence in 2003Capital gain = P.R. relief equals (1+3) divided by 6
Capital gain
$65,000
$195,000$30,000-$20,000
$10,000
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CHANGE IN USE
Note that there can be no “change-in-use” between a principal residence and a PUP recreational property
No!
“1+” only
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FIRST-TIME HOME BUYERS
RRSP Home Buyers Plan– Max withdrawal was $20,000 each
• Joint tenancy!
– Increased to $25,000 in 2009 Budget– Neither party can have owned a home in
the year of purchase + 4 preceding years– 90 day freeze on contributions, unless
sufficient $$ previously in…
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FIRST-TIME HOME BUYERS
RRSP Home Buyers Plan– 15 year straight line amortization– Commencing with contribution deadline for
second year following withdrawal• Or else amount is taken into income annually
– Can PAY larger amounts but…..– Cannot ACCRUE larger amounts into
income
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PERSONAL CREDITS
First Time Home Buyers (2009)– One time tax credit @ 15% (shared)– Max value is $750 per couple– 15% on $5,000 of costs associated with
the purchase of a home– Definition of first time same as existing one
for HBP• Five calendar years
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PERSONAL CREDITS
First Time Home Buyers– One time tax credit @ 15% (shared)– Max value is $750 – On $5,000 of costs associated with the
purchase of a home– Or for “non-new” owner with Disab Credit
buying more accessible home
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PERSONAL USE PROPERTY
Principal residence
Recreational property
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RECREATIONAL PROPERTY
Watch for cost base bumps!– All those renos over the years!– Including common strata capital costs
Being smart!
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RECREATIONAL PROPERTY
Divided use– Personal use and rental– Classification has implications for sale
• loss! PUP vs rental property
– Issue of apportionment of operating costs– 3 categories: rented/personal use/dark
• Prove “available for rent”?– Ads? Website?
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CHECKLIST
1. Was there a 1994 ACG?2. Did that ACG include pre 1982 p.r. designations? 3. Enquire into subsequent additions/improvements for ACB bumps4. Qualify to add prop tax/int to ACB?5. Eligible for p.r. designation?6. Eligible for p.r. designation prior to 1982. See PYITR para 554a for joint properties. 7. Change-in-use election useful or not?8. 4+ Rule for years after change to rental? (45-2)9. 4- Rule for years prior to change to p.r.? (45-3)10. A PUP? CG counts: CL does not, in corp, as well!
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CHECKLIST11. Multiple properties qualify for p.r.? Do gain/year calcs for each to optimize.See also Beam&Laiken Chapter 7 appendix12. Property size attract any problems?13. Any value to Reserve provisions?13a. Special option when the purchaser ASSUMES existing debt, to calculate the vendor's reserve with the denominator being the EQUITY not the GROSS PROCEEDS. 5 year alternate rule still applies.14. V-Day relevant?15. Depreciable property? Recap/TL issues.16. Divorce implications re CG?17. Split POD between L&B for depreciables?18. Deemed reallocation of POD under 13(21)?19. Waived for demolition situation? #Para 9 of IT 220R2 may negate zero building POD on demolition
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CHECKLIST
20. Apportion costs of disposal/acquisition21. Additional rules for P.R. owned on and after 1981: Interplay of Sec 40 (2)(b) and 40(6)(a) and (b) See B&L Ch 722. Replacement property deferral rules do not apply on sale and acquisition of RAW land: because it was never "used"23. Replacement property rules CAN apply even though Party A owned the property if it was a former business property used by related (business) Party B. See tax memo in 2005 file for lead references. Also can apply even though the subject property is outside Canada.24. Devaney Jan 07 (5) re transferring PUP to children: gifting vs sham vs forgiveable prom note top up
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Today’s mission
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