# Will I have capital Gains problems



## Northof60 (Nov 22, 2010)

I Currently own a house in the NWT. It is the primary and only residence.

If I buy a house in Alberta and rent it out for about 8 months (mostly to ensure it is secure, won't freeze up, etc) will I have any capitals gains issues on either property when I sell my house in the NWT in 8 months (which I will do before I move to Alberta).

Thx

How does revenue Canada look at this. Eessentailly, I am buying a new primary before I sell my old one.......but how long of time gap will they allow, and does having a renter mess that up?


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## Berubeland (Sep 6, 2009)

My understanding and I'm not an accountant is that you will pay capital gains tax on the time the tenant is in the home. 

For instance lets say your bought the home for $100,000 and it's worth $200,000 today, that $100,000 is capital gains free as your primary residence. 

If you rent it out and it goes up another $20,000 you'll owe tax on that. 

You should get a professional appraisal done when you change over...from primary residence to rental house to determine the value.


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## Northof60 (Nov 22, 2010)

Berubeland said:


> My understanding and I'm not an accountant is that you will pay capital gains tax on the time the tenant is in the home.
> 
> For instance lets say your bought the home for $100,000 and it's worth $200,000 today, that $100,000 is capital gains free as your primary residence.
> 
> ...


Thanks

I probably wasn't clear in my post. I won't be renting my existing house. I'll be renting the new one.


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## kcowan (Jul 1, 2010)

You can hold two houses for up to a year. CRA recognizes that it takes time to sell the older property. Renting out either property does mess that up.


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## Rico (Jan 27, 2011)

You're basically buying a rental property in Alberta. In 8 months, you'll sell your primary residence in NWT and pay no capital gains.

Once you move into the house in Alberta, it will undergo a "change of use" (from a rental property to a primary residence) whereby you're considered to have sold it at fair market value and repurchased it for the same amount.

That amount, the FMV above, is what any capital gains will be based on (from the original purchase price). Unless there is a crazy market increase in those 8 months, you'll likely pay very little (50% of increase at marginal tax rate). Don't forget you can claim closing costs, etc.

NOTE: you may have a way around this because of it being within 1 year, there may be an issue with claiming CCA; I recommend you speak to an accountant to confirm.


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## OhGreatGuru (May 24, 2009)

I think we are making more of this than there is.

The formula for calculating calculating capital gains exemption on a primary residence allows for a 1-year overlap, because people don't exchange residences on midnight of December 31.

IMHO the fact that he is renting out his new principle residence for 8 mos. doesn't affect anything as long as he doesn't try to claim Capital Cost Allowance or financing costs for it. You are allowed to rent out a principle residence for up to 4 years without declaring a change of use. The only effect is that the primary residence capital gains exemption would be pro-rated, but for only 8 months it would have no effect.


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## Cal (Jun 17, 2009)

Better to have a capital gains problem than a captital loss one!


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## Northof60 (Nov 22, 2010)

Thanks everyone. I will check with an accounant and Revenue Canada. Thx again.


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## Rico (Jan 27, 2011)

OhGreatGuru said:


> You are allowed to rent out a principle residence for up to 4 years without declaring a change of use. The only effect is that the primary residence capital gains exemption would be pro-rated, but for only 8 months it would have no effect.


If the OP makes an election under section 45(2) the 4-year rule applies. I just wasn't sure about this applying since the *new* house was getting rented right away (i.e., it was never a PR) and not the old one (if that matters, which it might).

When I did this, the rep from CRA mentioned the 1-year overlap so indeed this might be moot.


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