Personal Finance

Rental Income Declaration Question

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  • Apr 4th, 2010 12:33 pm
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Oct 18, 2003
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Winnipeg
ghostryder wrote:
Apr 2nd, 2010 2:37 am
"professional tax accountant" and radio personality? as opposed to Chartered or Certified Accountant. I have never heard him refer to himself as an "accountant". "Tax preparer" or "tax consultant" sure


Better than his.


Saccomanno bought a (non-legal and not entirely separate) triplex that was already rented (2 units), and moved into the 3rd. He let the tenants stay since evicting them immediately would have been difficult. He proved (and the onus was on him) to the judge that he intended to convert the house back to it's original state as a single family residence. His work/financial circumstances changed and was forced to sell the property.


I know of no Designated accountant or tax lawyer who agrees with Ingram's assertions, nor anyone who has successfully repeated Saccomanno's success. Intending to use the other units as rentals and as a source of rental income would be fatal in tax court as the "tipping point" for the judge was that he demonstrated that he did not intend to use the property for rental income.


Surely if Ingram is correct, someone in the last quarter of a century would have attempted to use Saccomanno in the way that Ingram suggests. Or he would be willing to back someone in a challenge in Tax Court. But he will not.
My Jury is still out on the Saccomanno case too. I've read the case, and read David Ingrams comments, but I'd feel alot better about it if somebody had an independant tax *lawyer* (opinions of accountants are just about useless when it comes to tax law as they cannot defend you in court should you get audited...in fact they can be used against you).

Anyhow, has anyone actually talked to a tax lawyer about the Saccomanno case?

I've also heard of people arranging for TWO mortgages for a triplex. One for your unit, one for the other two, you pay no principal on the rental unit mortgage until your unit is paid off, thus maximizing your interest deduction. Essentially this is a form of a "Smith Maneuver". Very clever, and apparently supported by case law (1988 Brian Wilson vs CRA, Judge Christie of Tax Court of Canada presiding).

Rich...
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Aug 19, 2001
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ghostryder wrote:
Apr 2nd, 2010 2:37 am
Better than his.
You credentials are so much "better" that you must keep them secret? I doubt it.
I know of no Designated accountant or tax lawyer who agrees with Ingram's assertions,
Which is only marginally relevant since you cannot know know more than a tiny minority of all those who exist.

And even those you do know may be wrong. It's the easy path to parrot a CRA bulletin as if it's legal fact even though it's nothing more than CRA interpretation.
nor anyone who has successfully repeated Saccomanno's success.
Ostensibly that means the CRA knows its interpretation was unlawful and thus doesn't disallow the exemption claims, obviating the need for anyone to take their case to court.

Unless you know of any particular court cases where triplex exemptions have been disallowed?
Surely if Ingram is correct, someone in the last quarter of a century would have attempted to use Saccomanno in the way that Ingram suggests. Or he would be willing to back someone in a challenge in Tax Court. But he will not.
Most certainly many tax filers *have* filed based on Ingram's advice. They would certainly consider it a "success" if their filings were not challenged by the CRA.

Why do you say Ingram won't back a legal challenge? Do you have a quote of him saying this?
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Dec 28, 2006
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grant wrote:
Apr 3rd, 2010 3:55 am
You credentials are so much "better" that you must keep them secret? I doubt it.

Just because I prefer to keep my "online life" separate from my real life you question my qualifications and integrity?

grant wrote:
Apr 3rd, 2010 3:55 am
Which is only marginally relevant since you cannot know know more than a tiny minority of all those who exist.

Let's put it this way. I know more than a dozen people who have owned 3-plexes or 4-plexes and did exactly what Ingram suggests. They lived in one unit and rented the rest. The all sold their properties claiming the PRE. All were reassessed by CRA. All reassessements were upheld by the CRA appeals division. All either filed appeals to Tax Court (or planned to) but changed their minds after seeking legal advice from a tax lawyer.

So 12+ different people all made the same decision after receiving advice from a tax lawyer (no, the did not all have the same lawyer). The advice for each was virtually the same. They all owned their properties for between 6 and 17 years, all rented them out, all reported rental income all those years. Unlike Saccomanno they all intended to (and did) generate rental income. "You are not likely to be successful, though if you want to go through with your appeal I'll be happy to take your money"


grant wrote:
Apr 3rd, 2010 3:55 am
Unless you know of any particular court cases where triplex exemptions have been disallowed?
Well there was that duplex case from the '70's (the name escapes me at the moment). The guy had a duplex which he put a "window" in between the units so that they were no longer completely separate. He argued in court that since the units were not separate, the whole structure should be covered by the PRE. The judge didn't agree. PRE was allowed on his unit only.


You'd think at least one person in the last 24 years would have taken a case like this to tax court. Especially someone with a case that was not as ambiguous as Saccomanno.

grant wrote:
Apr 3rd, 2010 3:55 am
Most certainly many tax filers *have* filed based on Ingram's advice. They would certainly consider it a "success" if their filings were not challenged by the CRA.

But anyone who has tried this and was reassessed by CRA but did not appeal to Tax Court would never be known. It is complete speculation to suggest that anyone has been successful.


My original opinion stands. The judge allowed Saccomanno to use his PRE on his house because he never intended for it to be a rental triplex. IMO the judge felt he was faced with a decision that was really a coin toss. It could have gone either way. The judge did what judges do in a case like that. They give the benefit of the doubt to the taxpayer.


I don't actually agree with the Judge in the Saccomanno case. I think he got snowed. I think Saccomanno did intend to generate rental income, at least until such time as his planned renovations to put the house back to it's original single family state had begun.
[OP]
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Apr 4, 2006
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I am kinda confused now, are you saying that I don't need to pay capital gains, but CRA will tell me I do, then i get reassessed then file an appeal? i thought tax law holds no precedence. and its a judge by judge basis.
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Dec 29, 2009
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Electricute wrote:
Apr 4th, 2010 12:16 pm
I am kinda confused now, are you saying that I don't need to pay capital gains, but CRA will tell me I do, then i get reassessed then file an appeal? i thought tax law holds no precedence. and its a judge by judge basis.
The intent of the legislation is that if you own and run a rental property, if you sell that property in the future, any gain attributable to that property will be taxable to you.

The Principle Residence Exemption allows you to accrue capital gains without paying any tax.

When your property is a mix of poth your personal residence and a rental property, then any gain related to the rented portion will be taxed but the personal portion will be tax free because of the principle residence exemption.

As the above posters have mentioned, there is case law where a taxpayer was allowed to use the full exemption even though part of the property was rented out. If you try to do the same thing, this precedent would be used to try to support why what you did is valid. However, for this to work, your circumstances would have to be similar (or identical) to the taxpayer in the case.

You can try claiming the full exemption, but then you run the risk of getting re-assessed by the CRA and incurring legal costs to defend your position in the tax courts should you take it that far.

You should consult with a tax lawyer so that he/she can determine what the best course of action is for you.

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