# Would there be capital gains due if you sell one property to re-invest in another?



## plaza (Sep 16, 2010)

Hi,

I am considering selling one of my condos to re-invest in another property which I think could bring me more monthly revenue. Because took amortization to reduce taxes over the years, my accountant tells me that I would owe over 25k in capital gains. My agent tells me that if I re-invest it into another property within the same calender year, there would be no capital gains to be paid. Who is right? Should I be looking for a new accountant?


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## andrewf (Mar 1, 2010)

Your real estate agent said that?

Who would you trust, your accountant or someone who wants 5% commission on your sale?


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## Fain (Oct 11, 2009)

I have no idea, but you can do that in the States. I hope Canada has the same thing going for it.


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## Fain (Oct 11, 2009)

andrewf said:


> Your real estate agent said that?
> 
> Who would you trust, your accountant or someone who wants 5% commission on your sale?


Do you know the answer?


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## plaza (Sep 16, 2010)

I have no reason to doubt my accountant yet and yes I know the agent wants to make money...that's why I am asking here for some feedback. Maybe my accountant does not know something as he does not specialize in real estate


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## the-royal-mail (Dec 11, 2009)

I think you would be better off to call CRA and talk to the right person over there. Find out for sure.

IMO (which means very little) you would have to pay capital gains when you sell the 1st property. But again, never having been in that particular situation, I do not know for sure.


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## FrugalTrader (Oct 13, 2008)

Plaza, are you in Canada? In the states, you can do a "roll over" where you can reinvest and not pay any taxes. In Canada, you would owe taxes on your sale. However, if you contribute enough to your RRSP in the same calendar year, you would avoid having to pay into the govt.


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## MoneyGal (Apr 24, 2009)

The CRA rules are fairly clear on this point. In the situation you have described, there is no capacity to defer a realized gain on a property. You can *offset* the gain with losses, and you may be able to defer *part* of the gain to a subsequent tax year, but you cannot defer or exclude the gain by re-investing the proceeds. 

Here is a link to the CRA guide on capital gains, and in particular to the section, "When do you have a capital gain or loss?"

http://www.cra-arc.gc.ca/E/pub/tg/t4037/t4037-e.html#P279_29831

Here's part of what it says: 

_Usually, you have a capital gain or loss when you sell or are considered to have sold capital property._

There are some opportunities to rollover (i.e., defer) gains or losses, but only in special situations which, presumably, you would already know about if you were in one. 

In the 2006 federal election, the Harper Conservatives proposed a measure to allow the deferral of capital gains on (real and other) property when the proceeds were re-invested within 6 months. However, that promise has never made it into law. 

If the capacity to defer gains by re-investing were available, it would be described in the CRA guide to capital gains and losses, linked above.


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## plaza (Sep 16, 2010)

yes I am in Canada (quebec)


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## FrugalTrader (Oct 13, 2008)

Another strategy would be to sell your property in early 2011 so that you wouldn't have to pay capital gains tax until you file in 2012.


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## MoneyGal (Apr 24, 2009)

Wait a minute. I am at home in bed with the flu, and just went back and re-read the original question. 

The OP is mixing two concepts: the recapture of CCA claimed on a building, and a capital gain. 

Here's the CRA circular on the recapture of capital cost allowance:

http://www.cra-arc.gc.ca/E/pub/tp/it478r2/it478r2-e.html#P104_10670

In a nutshell, when you own a property and you have taken a capital cost allowance against that property during your period of ownership, and then you SELL the property such that the total decreases in your ownership of assets in that class of property exceed the gains in ownership in that class, you are required to report as income the CCA you claimed on that property. (Sorry, it's a big nutshell.) 

You CAN offset the recapture of CCA by acquiring new assets in that class which offset the recapture on the original property. 

This is a totally separate matter from capital gains. 

Sometimes property owners do not take CCA on their properties to avoid the recapture, as income, of CCA at sale.


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## kcowan (Jul 1, 2010)

Yes the only way around it is to be living in the condo as a principle residence. If you are not already living in it, then capital gains apply.


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## ghostryder (Apr 5, 2009)

MoneyGal said:


> Wait a minute. I am at home in bed with the flu, and just went back and re-read the original question.
> 
> The OP is mixing two concepts: the recapture of CCA claimed on a building, and a capital gain.
> 
> ...



But if it is a rental property and the capital cost is >$50,000 each property has to be in a separate prescribed class, does it not? 

So you can't actually add a new asset to that class, since the new property would have to be in it's own prescribed class.


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## MoneyGal (Apr 24, 2009)

Yes, which is why I only referred generically to "property" and not real rental property. I said I was going to provide a nutshell.


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