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Hi,Ive an unusual question regarding my principal residence.

Hi, I’ve an unusual question regarding...
Hi,
I’ve an unusual question regarding my principal residence. I’ve been planning to renovate my old house in Toronto (Etobicoke) but by talking to my builder it may be possible instead of spending 200,000$ on renovations build two houses on my lot and I’ll kip one and other will be his as a payment for service.
Value of property now maybe around 550,000$ after building new two houses, one probably be valued for 850,000$.Would there be capital gain tax for this kind of transaction?

Thank. Mirek
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Answered in 10 hours by:
7/23/2013
Rakhi Vasavada
Rakhi Vasavada, Financial and Legal Consultant
Category: Finance
Satisfied Customers: 4,545
Experience: Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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Dear Mirek,

This is seriously unusual. From what I understand from your question, YES, such transaction will be subject to the Capital Gains Tax.

From your situation, you are receiving "X" amount of the services as consideration. If that is lower than the Fair Market value of your property, you would be liable for Capital Gains tax at the FMV less your basis.

From what I understand from your situation, you should certainly see capital gains tax liability even with such transaction.

I am sure this would help.

You may please leave a positive rating if this helps as that is the only way we receive credit for assisting you. Alternatively feel absolutely free to revert with more queries if you have.

Warm Regards
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Customer reply replied 4 years ago

 


 


Hi, Warm


 


Well......... let me specify again. I know if ....let say if... I sale second hose and pay for General contractor it may be conceder’s services than extra sum that is left it is taxable. In this case there is difference.


Idea is .........


I’m hiring company as a general contractor for building two dwellings on my principle residence property ( property with one old hose, 50ft/120ft will be divided to two lots 25ft/120ft) . I will pay him at the end of project with all the profits obtain from sale of one of the dwellings. Transaction will not be handled solo by contractor acting on my behave, I’ll not in any moment deposit or touch money from sale of that dwelling. There will be no deposit in to my bank account or whatsoever. So who will pay capital gain me or contractor?


......Here is proposal maybe this halp.........


 


 


Owner(s) Responsibility:




  1. The owner shall maintain property taxes up to date with the City of Toronto.

  2. The owner shall maintain at all times a valid insurance policy covering fire and theft.

  3. The owner to maintain ownership of the said lads and not transfer ownership until dwelling is completed and sold.

  4. The owner to assume existing mortgage (of approximately 70,000$).

  5. The owner to retain one completed dwelling for his/her personal use.

  6. The owner shall appear on building permit documents as applicant and Samsara Development Inc. as authorized agent.

  7. The owner to have input on design and select interior finishes on a budget basis for dwelling to be occupied by owner.


 




Contractor(s) Responsibility:




  1. Samsara Development Inc. will design, apply, manage, construct and finance two dwellings approximately 2000 sqare feet at 615 Brown’s Line, Toronto Ont.

  2. Samsara Development Inc. will administer all City of Toronto issues relating to the issuance of a building permit as the authorized agent.

  3. Samsara Development Inc. will prepare all necessary drawings including site plan, HVAC, grading, engineering and architectural.

  4. Samsara Development Inc. will caver all costs necessary to compete this Project.

  5. Samsara Development Inc. will maintain a Builders Risk Insurance Policy at all times until construction of both dwellings is completed and one is sold.

  6. Samsara Development Inc. will complete one dwelling for owner to occupy at no cost to owner.

  7. Samsara Development Inc. will complete and sell one of dwellings, at sole discretion of Samsara Development Inc.

  8. Profit from sale of one of dwellings shale be distributed to Samsara Development Inc.


 

Dear Mirek,

Hello and welcome again. Thank you for your detailed reply.

I understood what you are trying to say. You say that you would be paying the contractor from the sale proceeds of one of the houses. Though you will never take the money or deposit the money in your account. It will go directly to the contractor.

I hope that I have understood correctly.

Having said this, I see that you are referring to your principal residence. If you do not receive money, it would still be seen as DEEMED DISPOSITION. You will still be liable for Capital Gains Tax.

IMPORTANTLY, Any gain on the sale of a principal residence is tax-free. However, if you sell your residence, you should be aware that some tax rules apply.

Refer: http://www.taxplanningguide.ca/tax-planning-guide/section-2-individuals/principal-residence-rules/

http://www.collinsbarrow.com/en/cbn/publications/use-of-the-principal-residence-exemption

You can use Principal Residence Exemption if your property qualifies. The above links would guide you for that.

I am sure this would help.

You may please leave a positive rating if this helps as that is the only way we receive credit for assisting you. Alternatively feel absolutely free to revert with more queries if you have.

Warm Regards
Rakhi Vasavada
Rakhi Vasavada, Financial and Legal Consultant
Category: Finance
Satisfied Customers: 4,545
Experience: Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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