Tax question, selling rental property within 12 months

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Feb 6th, 2020 8:27 am

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Feb 3rd, 2020 11:25 am

Rizzil [OP]: Member; May 8, 2018; 205 posts; 255 upvotes

Feb 3rd, 2020 11:25 am

Tax question, selling rental property within 12 months

Hey everyone, I know that if you do this often its obviously business income, however because this would be my first time buying and selling a house before renting it can I still claim Cap Gains?

The reason I ask the Oshawa cheapie bungalow market has sky rocketed from Aug to now, almost 100k.

So if I sell now, only took possession mid Dec, never rented, however made attempts to rent, had a kijiji listing have email communication between myself and potential renters can I claim Cap Gains on the sell?

Thanks.

17 replies

Feb 3rd, 2020 1:31 pm

chizzayhizzay: Newbie; Oct 14, 2019; 65 posts; 371 upvotes

Feb 3rd, 2020 1:31 pm

Sorry, to be clear, you want to pay Capital Gains tax?

Feb 3rd, 2020 9:40 pm

Rizzil [OP]: Member; May 8, 2018; 205 posts; 255 upvotes

Feb 3rd, 2020 9:40 pm

Yes as its better than interest income. (Unless u mean not paying taxes at all)

Feb 3rd, 2020 10:42 pm

gerogesin: Member; Sep 22, 2014; 418 posts; 167 upvotes; Ottawa, ON

Feb 3rd, 2020 10:42 pm

I'm not sure I understand your question completely but if you are selling the rental house (regardless if it was rented), you will have to pay capital gains tax. Only your primary residence is exempt.

If you made 100k, you'll be subject to capital gains tax to 50k based on your marginal tax rate. If you keep doing this then the cra may possibly interpret this as your income and may tax you as if it's your income. I think this more applies to people who buy, fix and sell (house flippers).

Feb 4th, 2020 8:32 am

senasena: Deal Addict; Feb 19, 2019; 1823 posts; 2814 upvotes; Stouffville ON

Feb 4th, 2020 8:32 am

gerogesin wrote: ↑ I'm not sure I understand your question completely but if you are selling the rental house (regardless if it was rented), you will have to pay capital gains tax. Only your primary residence is exempt.

That's not what he is asking about, he is asking about this being a business not investment.
Comparing it to stocks it would be like investing and day trading, day trading is a business income taxed at 100%, but when you are investing you pay capital gain tax. You may be buying and selling the same stocks but the activity is different.

OP, IMO you have capital gains not business income.

Full Time and Full Service Realtor

+1

Feb 4th, 2020 9:53 am

DisneyKruze: Sr. Member; Jun 15, 2015; 969 posts; 1179 upvotes; Thornhill, ON

Feb 4th, 2020 9:53 am

Based on the information provided I think the tax authorities would consider the gain fully taxable as opposed to a capital gain (taxed at 50%). It does not matter whether this is a first time transaction.

Feb 4th, 2020 10:38 am

CEOofPopeyes: Sr. Member; Jun 2, 2017; 771 posts; 385 upvotes

Feb 4th, 2020 10:38 am

DisneyKruze wrote: ↑ Based on the information provided I think the tax authorities would consider the gain fully taxable as opposed to a capital gain (taxed at 50%). It does not matter whether this is a first time transaction.

Want to clarify why is that?

He clearly won't get the personal exemption (pay no tax) but I don't see how the info provided leads to being taxed as full business income vs capital gains.

Feb 4th, 2020 11:03 am

yasben: Newbie; Feb 4, 2014; 62 posts; 42 upvotes; Canada

Feb 4th, 2020 11:03 am

Definitely Capital gain and not business income, nothing to worry about OP.

Feb 4th, 2020 11:53 am

pinacoladas: Newbie; Jan 14, 2020; 25 posts; 38 upvotes

Feb 4th, 2020 11:53 am

yasben wrote: ↑ Definitely Capital gain and not business income, nothing to worry about OP.

I'd caution against saying 'definitely' - it's not that black and white. CRA is cracking down on flipping of properties and you never know what criteria they'll use in any given situation. Selling within 12 months with a profit - you're rolling the dice. Rent it for 3 years and sell it, and you have nothing to worry about. At least until the feds decide they need more tax revenue. I'm not making this stuff up..

From: https://www.canada.ca/en/revenue-agency ... ector.html

People who buy and resell homes within a short period for a profit are often engaged in property flipping. The CRA acquires and analyzes third-party data and has found that some flips are not being reported or are being reported incorrectly. The profits from flipping real estate are generally considered to be fully taxable. The facts of each case determine whether such profits should be reported as business income or as a capital gain.

Feb 4th, 2020 3:42 pm

chizzayhizzay: Newbie; Oct 14, 2019; 65 posts; 371 upvotes

Feb 4th, 2020 3:42 pm

I understand your question now. You want it reported as a capital gain as opposed to business income.

You're going to get mixed answers because it is open to CRA's interpretation of certain criteria and we can't tell you what CRA will make of this. It all depends on your intent at the time you purchased the property. Although it's difficult to prove your intent, the fact that you have held this property for such a short period of time could prove your intent to flip. You also mentioned you had put out listings to rent out your property on kijiji and you have documented this. This may actually work out to be not in your favour because it illustrates no intention to reside in the home yourself as well as the lack of patience to find a tenant given the short period of time that has elapsed.

There is much more criteria to look at. For example, are you in the construction/home renovations industry? Are there multiple owners on this property? What factors are leadi g you to sell (is it simply the perceived appreciated value)?

You'd need to look at those things before deciding to roll the dice.

Feb 5th, 2020 6:53 am

Rizzil [OP]: Member; May 8, 2018; 205 posts; 255 upvotes

Feb 5th, 2020 6:53 am

Wow this exactly what i was afraid off, so to be safe i need to rent for 12 months than its for sure 100% cap gains?

Feb 5th, 2020 8:19 am

skeet50: Deal Fanatic; Jan 15, 2017; 5311 posts; 5431 upvotes; Ottawa

Feb 5th, 2020 8:19 am

I would think to be safe you actually need to have collected rent, yes.

The challenge with questions such as these is that you are asking how we think one specific CRA employee will view your circumstances based on CRA guidelines and tax law. Who knows?

Feb 5th, 2020 10:33 am

DisneyKruze: Sr. Member; Jun 15, 2015; 969 posts; 1179 upvotes; Thornhill, ON

Feb 5th, 2020 10:33 am

Rizzil wrote: ↑ Wow this exactly what i was afraid off, so to be safe i need to rent for 12 months than its for sure 100% cap gains?

The longer you rent the property the better will be your chance of CRA treating the profit as a capital gain. Good luck, you may need it.

Feb 5th, 2020 10:37 am

pardnme: Deal Addict; Feb 22, 2007; 2033 posts; 271 upvotes; Mississauga

Feb 5th, 2020 10:37 am

based on what you posted....the intent was to flip...and not hold as an investment....you can report it as capital gains...but if you get audited i'm sure the auditor will look at the series of events and determine that it is business income.

yes, it can be business income even it if 1 property or your first time.

Even the 12 month rule has been overturned by auditors - they look closely at all the facts to figure out intent....I've seen people keep there house empty for 12 months (they claimed - nobody was a suitable renter, showed communications etc etc.) but auditors aren't dumb.....we all understand the housing market, and houses do NOT stay empty for even 1 month (unless you have reno's going on).

3 options:

a) the best one: keep the house and start renting it....the value will continue to go up
b) record as capital gain and pray you don't get audited
c) record as business income

Feb 5th, 2020 11:47 am

callernamet: Deal Fanatic; Mar 10, 2018; 5129 posts; 1596 upvotes; does it matter?

Feb 5th, 2020 11:47 am

What is property flipping?

https://www.canada.ca/en/revenue-agency ... tions.html

as always I am skeptic. OP may be trying to get out or trying to find a loophole as " I listed on kijiji for rent"

OP talk to tax consultant not RFD. Its lot of money if you are penalized.

Tried new coffee and doughnut. Found same old stale thing. expected bill of six bucks but it was 600 million. Big mistake so the guy said don't worry it is on the house. going back to McD.

Feb 6th, 2020 8:18 am

Rizzil [OP]: Member; May 8, 2018; 205 posts; 255 upvotes

Feb 6th, 2020 8:18 am

Ok thanks guys looks like im renting, but given this mornings treb report prolly better off anyways, they calling for another 10%+ average price increase in 2020.

If any agents from oshawa here can you comment on the huge surge in demand, a friend of mine looking for a detached under 500k said every open house he attended had massive lineups to get in...

Feb 6th, 2020 8:23 am

senasena: Deal Addict; Feb 19, 2019; 1823 posts; 2814 upvotes; Stouffville ON

Feb 6th, 2020 8:23 am

Rizzil wrote: ↑
If any agents from oshawa here can you comment on the huge surge in demand, a friend of mine looking for a detached under 500k said every open house he attended had massive lineups to get in...

It's not just Oshawa, and it extends beyond GTA, the demand is crazy and not enough supply, especially at the lower end of the market.

Full Time and Full Service Realtor

Feb 6th, 2020 8:27 am

Rizzil [OP]: Member; May 8, 2018; 205 posts; 255 upvotes

Feb 6th, 2020 8:27 am

But where are suddenly all these people coming from and willing and able to pay 100k more from just last summer??

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