# Avoiding capital gains taxes on rental property sale.



## sucka

It was an uneasy decision to make, but I decided to divest in my rental condo. It was the first thing i purchased when i was 22 and i've just paid it off and i think it's ripe to sell. 

I will have a substantial tax implication as i bought it for 160K and will probably fetch 300K. Are there any ways I can avoid or reduce the capital gains tax? I am loathe to fork over this kind of cash, i pay enough income taxes as it is.

The only strategy i know is to claim i live there for a year or so. Perhaps if i lower the rent to my current tenant and ask him not to claim rent and i just forward my mail there. My pricinciple residence is under my wife's name, so I don't if there is enough evidence for CRA to claim tax avoidance since i am married with a home.

I also heard this crazy scheme....sell it to my brother at market in exchange for a note payable. I get taxed right away. My brother sells it and gives me the funds bit by bit over time and he has no tax implication. In 5 years, I write off the note payable as an uncollectible bad debt and claim a refund. I dunno, sounds kinda sketchy to me, plus i'm sure he'll be taxed for the forgiveness of the debt.


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## MoneyGal

sucka said:


> I dunno, sounds kinda sketchy to me, plus i'm sure he'll be taxed for the forgiveness of the debt.


_kinda_ sketchy?!


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## stardancer

sucka said:


> The only strategy i know is to claim i live there for a year or so. Perhaps if i lower the rent to my current tenant and ask him not to claim rent and i just forward my mail there. My pricinciple residence is under my wife's name, so I don't if there is enough evidence for CRA to claim tax avoidance since i am married with a home.
> *Don't even think about this; you will be slammed by CRA. They will check to make sure the both of you are claiming separated.*
> 
> I also heard this crazy scheme....sell it to my brother at market in exchange for a note payable. I get taxed right away. My brother sells it and gives me the funds bit by bit over time and he has no tax implication. In 5 years, I write off the note payable as an uncollectible bad debt and claim a refund. I dunno, sounds kinda sketchy to me, plus i'm sure he'll be taxed for the forgiveness of the debt.
> *Doubt if this would work as the transaction is not at arm's length, and CRA will look into both you and your brother very carefully.
> 
> http://www.cra-arc.gc.ca/E/pub/tp/it159r3/it159r3-e.html*


That's my 2 cents worth.


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## MoneyGal

This person does not know enough about how the tax system works to successfully pull off this level of tax fraud. 

You don't get taxed on the gain from purchase price to selling price, you get taxed on the difference between the adjusted cost base and the gain. 

There's no way that $70K is getting taken into income.


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## sucka

MoneyGal said:


> This person does not know enough about how the tax system works to successfully pull off this level of tax fraud.
> 
> You don't get taxed on the gain from purchase price to selling price, you get taxed on the difference between the adjusted cost base and the gain.
> 
> There's no way that $70K is getting taken into income.


I'm aware of that, its half the gain, and then at my tax rate...so i'm still looking at 25 - 30K or so in taxes. 
The other option i can think of is to create a numbered company and transfer the property there. Have the company sell it and repatriate a return of capital to me. I don't need the funds so the gains can be left in the corporation indefinately. Can this work? The issue is I only have one property so it's entirely passive and not a business.

Then there's the nickel and diming stuff, like renovating my home and buying appliaces for my own home and increasing the ACB of the condo, but that's still small potatoes.


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## HaroldCrump

sucka said:


> The other option i can think of is to create a numbered company and transfer the property there. Have the company sell it and repatriate a return of capital to me. I don't need the funds so the gains can be left in the corporation indefinately. Can this work?


And apparently the rest of us are chumps for paying our taxes.


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## sucka

HaroldCrump said:


> And apparently the rest of us are chumps for paying our taxes.


Why are you being such an ***? I'm not a tax professional. If there is a way to avoid/reduce/defer the tax, I'd like to hear if you're willing to share. I mean, that's what tax planning and tax strategy is right?


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## the-royal-mail

sucka, you are asking us to assist you in tax evasion. I would be very surprised if anyone here wants to help you break the law. Do you really think the gov't doesn't lurk in this forum?

And contrary to the attitude you displayed here, you most certainly do not "pay enough taxes as it is"...the sale of your house is a taxable event. Pay the taxman and sleep well at night. If you decide not to heed this advice you're on your own. We're not helping you, not one iota.


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## andrewf

^ That won't work either. Transfering ownership is still a sale, and because it is not arms-length, it would be deemed to be sold at FMV.

Just pay the taxes.


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## sucka

the-royal-mail said:


> sucka, you are asking us to assist you in tax evasion. I would be very surprised if anyone here wants to help you break the law. Do you really think the gov't doesn't lurk in this forum?
> 
> And contrary to the attitude you displayed here, you most certainly do not "pay enough taxes as it is"...the sale of your house is a taxable event. Pay the taxman and sleep well at night. If you decide not to heed this advice you're on your own. We're not helping you, not one iota.


Well if someone told you there was a legit way to reduce your taxes substantially, you'd be all over it. and if it was qualified that it was a quasi-legal method, your ears would still perk up. If you say you wouldn't you'd be lying, so get off your high horse. I'm not asking anyone to consider the ethical dilemma this poses, my ask was very simple. If you don't know, don't care to divulge or don't agree, well good on you. Tell me this, go back to your tax return and tell me you haven't fudged anything...safety deposit boxes that you don't really have, other stuff you write off from thin air. You're full of ****.


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## sucka

andrewf said:


> ^ That won't work either. Transfering ownership is still a sale, and because it is not arms-length, it would be deemed to be sold at FMV.
> 
> Just pay the taxes.


Thank you, for responding to my query in a non-condescending tone. Much appreciated.


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## MoneyGal

OK! Got it!

Here's the best tip I know in your situation: take the gain into income over 5 years. Search on the site for "capital gains reserve" for more information.


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## sucka

MoneyGal said:


> OK! Got it!
> 
> Here's the best tip I know in your situation: take the gain into income over 5 years. Search on the site for "capital gains reserve" for more information.


Thanks I'll look into that, much appreciated as it's obvious you spent the time to dig this up. If i sound ignorant or stupid about the tax laws surrounding these events, it's because I am, thus i'm inviting you all to share your experiences or knowledge. If i can save a couple bucks for my kids, why not take a shot, who knows maybe i can learn something.


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## HaroldCrump

sucka said:


> Tell me this, go back to your tax return and tell me you haven't fudged anything...safety deposit boxes that you don't really have, other stuff you write off from thin air.


Can't speak for others, but I haven't.
Not this year, not ever.
No phony deposit boxes, no phony registered corporations, no secret financial dealings with brothers and cousins.
It's one thing to ask for tax saving advice, but your tone and your ideas are, well, more "creative" than usual.
And I had quoted one such creative idea in the previous message.

Anyhow, good luck.
Hope it all works out for you.


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## CanadianCapitalist

Tax avoidance is illegal. You are welcome to be stupid enough to discuss ways in which you are going to creatively avoid taxes on a public forum but we cannot condone that you want input from other members on how to break our laws. You are banned and if members agree this thread will be closed / deleted.


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## MoneyGal

CC. Fine by me. Those kinds of posts really bring down the tone of the site. We don't want CMF to gain a reputation for that kind of sleazeball discussion.


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## the-royal-mail

I concur. Although the OP has backtracked significantly in recent posts, God help us if the CRA should happen to perceive us to be aiding in tax evasion. Also remember there are hundreds/thousands of people lurking in this thread. I cannot take part in enabling this type of discussion and egging people on to create numbered companies and other shell games. I know I'm coming across as really harsh but I do not believe in messing with the CRA and have NEVER hidden anything from them. I like to think my fellow posters at CMF are above that.


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## CanadianCapitalist

OP here isn't the sharpest knife on the block because OP signed up for a member with his/her work id! If CRA ever comes calling, they'd know exactly who they are looking for.

Here's my tip for OP: Don't even think about breaking the law. Tax planning is fine. None of us want to pay a penny more in taxes than we have to. What you are talking in your first post is called tax evasion and it is a crime. It is up to you to decide whether a chunk of $$$s are worth the ruin when CRA decides to throw the book at you.


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## marina628

Paying my tax bill motivates me to earn more money .I know how much i need as a net paycheck and of course you reduce your tax bill by maxing the RSP Etc.I invest in Real Estate and every year we pay taxes on the net Profit and have sold a couple homes and paid the capital gains on them. You are greedy when you look for ways to escape the tax bill and greed is a weakness IMO.
I have a home office and we did not want our accountant to claim $250 a month as expenses .We had nearly $308,000 in net revenue a couple years back and only claimed $56 in meals for the business .We got audited in 2010 and we would get requests from the auditor and we faxed her the stuff in minutes.It took 7 months back and forth with asking for things like insurance policies ,bill of sales ,copies of contracts but we got a clean stamp and FINALLY the $17,000 HST check they owed us.


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## ghostryder

sucka said:


> I will have a substantial tax implication as i bought it for 160K and will probably fetch 300K. Are there any ways I can avoid or reduce the capital gains tax? I am loathe to fork over this kind of cash, i pay enough income taxes as it is.



I have the perfect and completely legal way to minimize the tax liability. 


Sell the property to an arms-length party for exactly your adjusted cost base. No gain, no tax liability.


Problem solved.


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## Karen

Sucka, I'm not going to comment on the ethics of what you're considering, but I was shocked that you're considering involving your brother in your plans to evade taxes. You don't seem to realize that there are two methods of avoiding taxes; one is tax avoidance, which means taking advantage of all the legal ways of lowering your taxes; the other is tax evasion, which is what you're proposing. I honestly don't think you intend to be dishonest - you just don't understand the difference. There are a lot of experienced, knowledgeable people here who all agree that you will risk criminal charges if you proceed with your schemes. If you want to take that risk, that's your business, but for goodness sake, don't involve your brother.

Note to Canadian Capitalist: Even if you decide to close this thread, wouldn't it be better to leave the thread here so you would have evidence to show CRA that the OP did not have the support of people on this forum, should it ever became necessary


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## humble_pie

i'm a strong believer in the right of free speech, so i'd be in favour of letting the thread stand as is, because all who read it can see which way the wind is blowing & what a gale force it is. This collection of messages is a crystal-clear testament to the refusal of the cmf community to help or even listen to a tax conniver.

the problem with censorship that civil liberties advocates always run up against is Who shall Have the Power to Censor. One little step further & it's bigotry. Another little step & it's a police state.

plus i really doubt the CRA would eavesdrop here. It would not be cost effective for them.


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## the-royal-mail

Karen, I think the OP does know the difference. If you read through the thread, you can see where he approached us asking about creating a numbered shell company to avoid paying the taxes (which was the evidence he wanted to evade taxes) -- it was only when we started posting flames that he backtracked and toned down his replies, saying he was just interested in minimizing his tax bill as anyone else would. This thread would have taken a decidedly different route if he had of taken that same approach in the first place.

At this point, I agree there is some value to leaving the thread in place but it should probably be locked down to further replies to prevent rogue posts by people with an agenda who see nothing wrong with assisting the OP in his request. This has nothing to do with civil liberties and everything to do with common sense and not attracting any unwanted scrutiny upon ourselves. This forum is easy enough to find and public enough that it is NOT a safe assumption that CRA isn't looking in. Especially now that all the keywords have been posted in this thread and are only a google search away.


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## Berubeland

Dear OP, 

I hear you, it's hard to pay taxes sometimes. (I'm pretty sure that most people feel this way) 

The problem is that you are likely to become a victim. Unfortunately there are many instances of people like you getting a "yes" answer to your question (for a small or sometimes large fee of course) then sometimes years later the CRA comes a calling and you are the one on the hook. 

This applies to the mostly questionable new schemes that come around. It takes CRA years to make definitive rulings then they go back and get their money. In the meantime people think they are getting off scott free and these schemes propagate widely and are touted as legal etc. 

It gets even more dangerous when people from the US come here and start hawking their plans. The nature of the deal is that when you are trying to avoid paying taxes, you are not going to call CRA to find out if it's legal or not and these people take your money and make incredibly persuasive arguments about Nevada corporations and other crazy plans that only they can set up for you. 

That's not to say that there are not some viable complicated solutions to your problem, but not for the amounts of money that you are talking about. 

One of my employers was a very rich family and they had on staff a very competent accountant who would fly around to various tax conventions and stay up to date on the tax laws as they came out, as there were rulings, and to be extremely aggressive with avoiding taxes. Apparently there are always loopholes. Then when they would get audited and they did almost every year, his job was to fight it. The point is that you have to be extremely wealthy for it to be worth it. The guy made over $100G per year so he must have had to save them even more than that. 

In your case, the sum you are trying to save is paltry in such matters and the overhead required to develop complex solutions is more than you are trying to save. Chances are if you keep asking this question some shyster is going to charge you to work on a "guaranteed" solution, take a bunch of your money and disappear once CRA comes a calling. Then you will have paid the shyster and be stuck with the CRA bill and penalties. The cost to fight CRA on their interpretation of the tax code is more than you are going to save. 

On the other hand, your bet bet is to consult with a good property accountant who for a reasonable fee may save you a few thousand bucks entirely legally.


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## Cal

sucka said:


> Well if someone told you there was a legit way to reduce your taxes substantially, you'd be all over it. and if it was qualified that it was a quasi-legal method, your ears would still perk up. If you say you wouldn't you'd be lying, so get off your high horse. I'm not asking anyone to consider the ethical dilemma this poses, my ask was very simple. If you don't know, don't care to divulge or don't agree, well good on you. Tell me this, go back to your tax return and tell me you haven't fudged anything...safety deposit boxes that you don't really have, other stuff you write off from thin air. You're full of ****.


Ummm...no. I can only speak for myself. But I haven't fudged anything on a return. Karma has a funny way of coming about.

My advice would be to sell if you want, and pay the taxes.

If you are interested in getting pretty with the transaction, you could consult an accountant for their opinion, or you could call Canada Revenue Agency and I am sure they will assist you in your tax options in this regard.

All the best on the sale! 

There are many US citizens that wish they could pay taxes on the sale of their investment properties right now.


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## DavidJD

Why sell? Borrow some money on it, write off the interest while you invest it, rent it out and enjoy revenue and other write offs.

Am I missing something?


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## Elbyron

DavidJD said:


> Why sell? Borrow some money on it, write off the interest while you invest it, rent it out and enjoy revenue and other write offs.
> 
> Am I missing something?


I agree. Unless there's a good reason, you should consider keeping the property until you retire, lose/quit your job, or have a reduced income for some other reason. Lowering your marginal tax rate is probably the best way to minimize the taxes you'll have to pay on the sale of this property.


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