# Capital gains on sale of vacant land



## ykphil (Dec 13, 2009)

Please help me understand and calculate my tax obligations when I sell a small vacant acreage in the next month or so. I bought it for $170K, and it will likely sell for $475K, maybe more if I believe my realtor. It was never rented and I did not purchase it as an investment. In the past 7-8 years, I essentially used it as a place to camp a few months a year until I could eventually build a cabin for retirement. I cut trees to open a clearing for a future building site, brought power, dug a well, built a fence. Complete change of plans, I retired abroad a year ago and want to buy a small house here so I need cash.

Thanks for your advice.


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## Spudd (Oct 11, 2011)

If it was never your principal residence, which since it's just land, I guess it couldn't have been, then you will make 300k on the sale. Your income for the year will increase by 150k (half of 300k). You will pay taxes on that amount of income.

So for example if your normal income is 50k you'll make 200k this year (your normal 50 + the 150 from the sale). Depending on province, that'd be anywhere from 58k to 77k in tax. 








TaxTips.ca - 2023 & Earlier Basic Tax Calculator - compare 2 scenarios


TaxTips.ca - 2023 & Earlier Basic Canadian income tax calculator - Total taxes for each province, marginal tax rates for capital gains, eligible and non-eligible Canadian dividends, and other income.




www.taxtips.ca





Note: I'm assuming you're still a Canadian resident for tax purposes. If this was a bad assumption, I don't know what happens in that case.


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## Mortgage u/w (Feb 6, 2014)

What Spudd said.

I should add that you may be entitled to deduct some expenses in order to reduce your capital gain. I would assume the acquisition costs, clearing trees, digging of well, bringing power line and fence could be deducted. I'm no expert so I recommend you consult an accountant first.


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## Spudd (Oct 11, 2011)

Mortgage u/w said:


> What Spudd said.
> 
> I should add that you may be entitled to deduct some expenses in order to reduce your capital gain. I would assume the acquisition costs, clearing trees, digging of well, bringing power line and fence could be deducted. I'm no expert so I recommend you consult an accountant first.


This is a good point. I neglected to think about the improvements you made. If you have receipts for your expenses related to those improvements you should be able to add them to your ACB.

The cost of a capital property is its actual or deemed cost, depending on the type of property and how you acquired it. It also includes capital expenditures, such as the cost of additions and improvements to the property. 






Capital Gains – 2021 - Canada.ca


Information for individuals on capital gains, capital losses and related topics. How to calculate, how to report, Schedule 3, Adjusted Cost Base (ACB)




www.canada.ca


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## ykphil (Dec 13, 2009)

Spudd said:


> If it was never your principal residence, which since it's just land, I guess it couldn't have been, then you will make 300k on the sale. Your income for the year will increase by 150k (half of 300k). You will pay taxes on that amount of income.
> 
> So for example if your normal income is 50k you'll make 200k this year (your normal 50 + the 150 from the sale). Depending on province, that'd be anywhere from 58k to 77k in tax.
> 
> ...


Thank you for taking the time to reply. I am still a resident of Canada for tax purposes, so your assumptions were correct. I was expecting some tax implications if I were to sell with a profit but I didn't really realize it would be such a big chunk of change. At least since the sale will be reported on my 2022 income tax return in a year's time, I have plenty of time to prepare.


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## ykphil (Dec 13, 2009)

Mortgage u/w said:


> What Spudd said.
> 
> I should add that you may be entitled to deduct some expenses in order to reduce your capital gain. I would assume the acquisition costs, clearing trees, digging of well, bringing power line and fence could be deducted. I'm no expert so I recommend you consult an accountant first.


Thank you, these were questions I had too and I started adding up these expenses in case I could claim them to reduce my capital gain. I always did my own tax returns but in this case, your suggestion to consult an accountant is a good one, I will certainly do that.


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## hfp75 (Mar 15, 2018)

If you are gonna use your improvement costs to offset the gain you will need receipts, did you keep them by chance ? I dont know but 2x check the travel too...


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## Ponderling (Mar 1, 2013)

In this scenario I don't know if you did the works yourself you can account for an equal amount to a labour wage for the works as part of the ACB. So an accountant is needed for sure.


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## Numbersman61 (Jan 26, 2015)

Ponderling said:


> In this scenario I don't know if you did the works yourself you can account for an equal amount to a labour wage for the works as part of the ACB. So an accountant is needed for sure.


Unfortunately, you cannot add the value of your labour contribution to the ACB.


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## ykphil (Dec 13, 2009)

hfp75 said:


> If you are gonna use your improvement costs to offset the gain you will need receipts, did you keep them by chance ? I dont know but 2x check the travel too...


I must admit, this place was going to be my retirement home so I never really kept tab of my expenses...my bad...But I was able to get invoices from the local hardware store where I had purchased every single material and supply, including tools to clear the building site, since day 1, so at least I am covered for that. I did all the work myself except electrical connections and digging the well (I have invoices for those) but from Numbersman61's comment, I cannot add my own labour to the ACB.

I think the recommendation to use an accountant to file my taxes for 2022 is very good, they will definitely be able to give advice on what I can and cannot claim. 

PS. Property sold in a two days, received 7 very competitive offers almost overnight. I am quite surprised, if not shocked. The realtor didn't expect such a response. About two years ago, I thought about selling the property but the realtor had told me I could expect at most $225K, so I held off but still grumbled every year about paying the annual tax and levies for "nothing". I am glad I did, although selling what was at one time our dream property is bittersweet, but we are off to a different adventure.


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## ykphil (Dec 13, 2009)

Numbersman61 said:


> Unfortunately, you cannot add the value of your labour contribution to the ACB.


Thanks for confirming. I did most of the work myself except electrical and digging the well. Luckily, I kept a paper trail of these major expenses I can add to the ACB. 

A question I have is the cost for the architectural drawings and engineering review of plans for a house I had planned to build. Can these be also deducted?


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## Mukhang pera (Feb 26, 2016)

Another point is that you would think your holding costs, such as property tax and mortgage interest (if any) could be deducted, but I do not think the CRA sees things that fairly or reasonably.


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## Numbersman61 (Jan 26, 2015)

My personal view is that the architectural drawings etc. could be added to the ACB. Holding costs are another matter and I expect would be disallowed by CRA.


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## hfp75 (Mar 15, 2018)

I think that your property tax costs are deductible from the gain too...


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## Spudd (Oct 11, 2011)

hfp75 said:


> I think that your property tax costs are deductible from the gain too...


I don't think so. This article says the ACB is your cost to acquire it, plus any renovation costs, plus the cost to sell it. No mention of property tax.








How Is Capital Gains Tax Calculated On Real Estate In Canada? - SRJ Chartered Accountants Professional Corporation


When you sell a capital asset or an investment and the proceeds of the sale exceed the adjusted cost base (ACB) of the asset, you realize a capital gain.




www.srjca.com





For a rental property you deduct property tax from your income every year, you don't add it to your ACB. I really don't think holding costs such as property tax are deductible from a capital gain. Hopefully Numbersman or someone else more knowledgeable can chime in.


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## Money172375 (Jun 29, 2018)

Spudd said:


> I don't think so. This article says the ACB is your cost to acquire it, plus any renovation costs, plus the cost to sell it. No mention of property tax.
> 
> 
> 
> ...


I agree. Property taxes not included in ACB. Realtor fees can be deducted from the disposition.


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## Numbersman61 (Jan 26, 2015)

As I previously posted, adding holding costs to the ACB likely would be challenged by CRA. Some may suggest this a ”grey area” and would take the aggressive approach and add it to the ACB. Personally, I would take the conservative approach and ignore holding costs in the calculation.


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