# Capital Gains from sale of Real Estate



## Antego (Jul 16, 2010)

How many months must I occupy my primary residence in order to be exempt from Capital gains. I am in Ontario and have occupied the residence for 7 months. 

I hear 6 months from some and 12 from others.


----------



## MoneyGal (Apr 24, 2009)

There is no "rule" about how many months a PR must be occupied in order to qualify for the PR capital gains exemption. 

Instead, CRA uses the "ordinarily occupied" test. Here's the relevant section of the circular you want to read: 

http://www.cra-arc.gc.ca/E/pub/tp/it120r6/it120r6-e.html#P76_9122

And here's the chapter in the Capital Gains guide on principal residences:

http://www.cra-arc.gc.ca/E/pub/tg/t4037/t4037-e.html#P4266_152355

And here's the whole section on principal residences on the CRA site:

http://www.cra-arc.gc.ca/tx/ndvdls/...rprtng-ncm/lns101-170/127/rsdnc/menu-eng.html

Protip: when in doubt on a tax issue, go to the people who actually set the rules.


----------



## davext (Apr 11, 2010)

These rules are still hard to understand for me to understand. Selling your primary residence and not paying capital gains tax does not require much work in your tax return right? 

And the "primary residence" designation would only be challenged if the CRA wanted to, like in an audit, correct? It's not automatically to the tax payer proving it.

I have a condo that is closing and I wanted to live in it originally but now I find myself thinking about getting engaged so I'd rather sell it. However, I haven't done the final closing yet even though I've changed all my addresses to this condo. I've occupied this condo and have been paying occupancy fees since February. I"m just waiting for the builder at this point. I hope I don't have to pay capital gains tax if I sell my condo in a week or two after final closing.


----------



## MoneyGal (Apr 24, 2009)

You should not have to pay capital gains. The biggest factor is your intention. If you intended to occupy the residence as your PR, you should not have to pay capital gains tax if there is a gain when you sell, no matter how long you lived in it. 

Selling your PR requires NO work on your tax return. There's no place to report the gain. 

Yes, you would be questioned or challenged through the review process, up to and including an audit. 

Sorry if my earlier reply was snippy.


----------



## MoneyGal (Apr 24, 2009)

Also...you are assuming you will have the gain which you may not (especially after transaction costs are factored in). If you are really worried, keep all of your receipts in the event you are challenged. 

Also - my earlier response may not have been clear - IF you are challenged, it will be through the review process. I didn't intend to say that you WILL be challenged.


----------



## GeniusBoy27 (Jun 11, 2010)

You're selling 1-2 weeks after the final closing?

If you get audited, I'm sure CRA's going to say you're going to have to pay capital gains tax, because it looks like a flip, and you had no intention of living in the place at all.

How much capital gains are we talking about between selling and buying price (- the agent fees, land transfer taxes, lawyer fees, etc)? Do you think it's worth the hassle against a possible audit?


----------



## davext (Apr 11, 2010)

It's about $120,000 in capital gains, so 50% of that would be taxed at my marginal tax rate. 

I bought this condo more than 5 years ago, I think it would be reasonable for my "intention" to change at some point? 

These things are so subjective but I've been audited before by the CRA when I worked out of the country for a year and even though I paid taxes to both the foreign country and Canada, they thought I should pay a bit more.


----------



## kcowan (Jul 1, 2010)

I think the key element is that you only have one PR and it is the condo. Then you move to another PR.


----------



## GeniusBoy27 (Jun 11, 2010)

I totally misunderstood what you wrote above. If you've owned it for 5 years, then, it's your principle residence (as long as you don't have a principle residence elsewhere). 

I agree with kcowan and moneygal then.

You don't need to report it to CRA. You have 1 principle residence, and you've moved to the next. No capital gains at all.


----------



## davext (Apr 11, 2010)

I didn't own it for 5 years, i put down the down payment 5 years ago when the condo hasn't constructed but I've had to wait since this month for final closing. 

For condos, first there's occupancy where you pay the builder money to live there when the condo is ready to be occupied but not registered yet. Then there's final closing when the condo is ready, registered and ready to transfer ownership from the builder to me. 

With so many condos being bought, I wish the CRA had more case studies/examples of what and what isn't a PR.

I have been living with my parents and abroad during my 5 year wait.


----------



## GeniusBoy27 (Jun 11, 2010)

I still think if that's your scenario, it's still your principal residence, since you don't have one ...


----------



## cardhu (May 26, 2009)

I don’t know for sure, but I expect CRA would accept the closing date as your acquisition date for CG purposes, in which case you should be fine claiming the PR exemption. I’m sure that this business of builders & developers taking years to deliver on new homes is something CRA deals with routinely.


----------



## davext (Apr 11, 2010)

I appreciate the advice and the support too! At least I feel like I'm making some reasonable assumptions.


----------



## Antego (Jul 16, 2010)

Thanks for the feedback. Much more clear to me now.


----------



## Jay2011 (Jan 20, 2011)

I'm in the same boat and based on the discussion here and I can sell my condo soon after incorporation this May and keep the capital gains? I had the intention of living in it some years ago but that has changed. I won't be living in it at all and will look to sell right away if possible. Time line: Bought (2006), Interim Occupancy (Feb 2011), Title transfer (May 2011).

I have a scenario - just to come at this from the other perspective - in the case of this being an investment property. 

Based on section 12 of CRA's interpretive bulletin 437R - Ownership of Property:

"12. When acquiring a residential condominium unit, it is not unusual for a taxpayer to make a down payment, to enter into an agreement of purchase and sale, to enter into an occupancy agreement and to take possession prior to the registration of the condominium. The occupancy agreement may provide for payments which reflect the carrying costs of the condominium until the purchase transaction can be completed. Normally in such a situation, the taxpayer does not own (either beneficially or legally) the condominium unit until the condominium is registered under the relevant provincial legislation and the purchase transaction has closed."

http://www.cra-arc.gc.ca/E/pub/tp/it437r/it437r-e.html

So, my understanding is that as a new condo owner, I only "own" the property upon registration/title transfer which makes perfect sense. So even if I do not elect to designate this as my principle residence any capital gain calculation is based on the date of ownership (legal or beneficial)? Thus if the condo is registered May 1st 2011 and I sell May 2nd 2011, I would only pay capital gains on the appreciation between those two dates minus any expenses. Am I missing something here?

Of course, the easiest/most prudent is to sell the property as a principle residence.


----------



## Jay2011 (Jan 20, 2011)

Anyone?


----------



## whitegentian (Feb 8, 2011)

Great info MoneyGal!


----------



## Eclectic12 (Oct 20, 2010)

davext said:


> [ ... ]
> 
> These things are so subjective but I've been audited before by the CRA when I worked out of the country for a year and even though I paid taxes to both the foreign country and Canada, they thought I should pay a bit more.


I was lucky when I worked in the US - my Canadian employer provided tax advice/did the US tax return. No audits or issues to be had.


----------



## sprocket1200 (Aug 21, 2009)

5 minutes, let them prove your 'intentions'...


----------



## K-133 (Apr 30, 2010)

sprocket1200 said:


> 5 minutes, let them prove your 'intentions'...


With CRA, it doesn't work that way. They are right, and the onus is on you to prove otherwise.

Jay - Your property would have appreciated between 2006-2011 however, technically, that gain is not realized until you take ownership and sell - as you are still purchasing at the 2006 price. That appreciation could be considered a capital gain. I am assuming that that the builder delayed occupancy much further than you had expected. If that's so, then I can see that you had the intention to live there however your situation had likely changed during the great delays in the construction period.

I'd suggest you talk to a tax lawyer or accountant to gauge whether they believe it possible to defend your intentions in this case. i.e. What has changed that you would no longer be able to consider this your primary residence? Maybe you expanded your family, moved, or your financial situation changed.


----------



## MoneyGal (Apr 24, 2009)

They are right, and the onus is on you, but the standard you will be held to is "reasonableness." If you had no other principal residence, you are most likely fine. However, if you have a relationship with an accountant, it wouldn't hurt to run your return by them - or have them prepare the return for you come tax time.


----------

