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Geyser
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Location: In a van down by the river

Re: Basement suite tax bomb explodes

Tue Oct 04, 2016 4:53 pm

VanLord wrote:
Geyser wrote:
VanLord wrote:
"There you go, you can start airbnbing your garage!!"

That could be an excellent long-term strategy, particularly if the homeowner occupies the smallest space. 

Maximize your rental income and tax writeoffs in the downmarket and then, when the market finally enters its next bull cycle, evict the tenants and restore the Primary Residence status. That way you could enjoy tax-free Capital Gains in the up years and accrue big Capital Losses in the down years. Sounds good to me.

Airbnb the house, you live in the garage!  Then you just need some big gains elsewhere to apply the losses to.

Simple, just short local real estate during the bust. :D
 
VanLord
Real Estate Talker
Posts: 287
Joined: Fri Aug 24, 2007 3:52 pm

Re: Basement suite tax bomb explodes

Tue Oct 04, 2016 5:26 pm

Geyser wrote:
VanLord wrote:
Geyser wrote:
VanLord wrote:
"There you go, you can start airbnbing your garage!!"

That could be an excellent long-term strategy, particularly if the homeowner occupies the smallest space. 

Maximize your rental income and tax writeoffs in the downmarket and then, when the market finally enters its next bull cycle, evict the tenants and restore the Primary Residence status. That way you could enjoy tax-free Capital Gains in the up years and accrue big Capital Losses in the down years. Sounds good to me.

Airbnb the house, you live in the garage!  Then you just need some big gains elsewhere to apply the losses to.

Simple, just short local real estate during the bust. :D

How do you do that?  Besides Home Capital Group
 
Geyser
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Joined: Tue Jun 05, 2012 5:26 pm
Location: In a van down by the river

Re: Basement suite tax bomb explodes

Wed Oct 05, 2016 10:32 am

VanLord wrote:
Geyser wrote:
VanLord wrote:
Airbnb the house, you live in the garage!  Then you just need some big gains elsewhere to apply the losses to.

Simple, just short local real estate during the bust. :D

How do you do that?  Besides Home Capital Group

Your on the right track. Pick a basket of mortgage lenders with low qualifying rules and a fat book. Some residential REITS might be a tempting target too.
 
westcoastfella
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Joined: Fri Mar 23, 2007 8:11 am

Re: Basement suite tax bomb explodes

Sat Oct 15, 2016 8:35 am

A financial planner has opined on the basement suite conundrum

3. Changing part of your principal residence to a rental property
Finally, what if you decide to convert only part of your principal residence into a rental property? While technically the change of use rule above applies, the CRA will consider you to have not changed its use if your rental use of the property is “relatively small in relation to its use as your principal residence,” you don’t make any structural changes to the property and you don’t deduct any CCA on the part you are using for rental purposes.
If you meet these three conditions, the whole property may qualify as your principal residence, even though you are using part of it for rental purposes. If you don’t meet these conditions, when you actually sell the property, you are required to allocate the selling price between the part you used for your principal residence and the part you used for rental purposes. The CRA will accept a split based on square metres or the number of rooms, provided the split is “reasonable.” You must then report any capital gain on the part you used for rental purposes.
 
VanLord
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Posts: 287
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Re: Basement suite tax bomb explodes

Sat Oct 15, 2016 9:01 am

westcoastfella wrote:
A financial planner has opined on the basement suite conundrum

3. Changing part of your principal residence to a rental property
Finally, what if you decide to convert only part of your principal residence into a rental property? While technically the change of use rule above applies, the CRA will consider you to have not changed its use if your rental use of the property is “relatively small in relation to its use as your principal residence,” you don’t make any structural changes to the property and you don’t deduct any CCA on the part you are using for rental purposes.
If you meet these three conditions, the whole property may qualify as your principal residence, even though you are using part of it for rental purposes. If you don’t meet these conditions, when you actually sell the property, you are required to allocate the selling price between the part you used for your principal residence and the part you used for rental purposes. The CRA will accept a split based on square metres or the number of rooms, provided the split is “reasonable.” You must then report any capital gain on the part you used for rental purposes.


Exactly, nothing has actually changed on this matter.  The same thing we talked about and discussed on previous threads, the three rules still apply.  Not the tax bomb that Geyser wished for.  The CRA merely made a more effective mechanism to track housing gains and hopefully stop the fraudulent behavior.  Although I think they should have went one step further and put in a withholding tax when non-residents sell a property or assign a purchase agreement.  There is still a loophole here, where these non-residents can walk away with all the gains and not report anything since they don't file taxes in Canada.  Or at the very least the Canadian gov has no way of actually getting the money back if they run back to their home country with the proceeds of a sale.  We as Canadians as usual face extra scrutiny while the people taking advantage of the situation can still get away.
 
eyesthebye2
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Re: Basement suite tax bomb explodes

Sat Oct 15, 2016 1:39 pm

The thing missing from all these rule changes is a snitch line.
I'm sure locals are very eager to turn in these tax cheats. I am.
 
Geyser
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Joined: Tue Jun 05, 2012 5:26 pm
Location: In a van down by the river

Re: Basement suite tax bomb explodes

Sat Oct 15, 2016 2:30 pm

eyesthebye2 wrote:
The thing missing from all these rule changes is a snitch line.
I'm sure locals are very eager to turn in these tax cheats. I am.


The CRA has the courts on its side. Capital Gaind Tax is payable on rental basement suites. How long before they start looking for the rental income cheats too?


http://househuntvictoria.ca/2016/10/07/do-you-have-to-pay-capital-gains-tax-on-your-suite/


BTW, there is already a snitch line and CRA will investigate.

http://www.cra-arc.gc.ca/leads/


Informant Leads Program
[size=150]2016-02-08[/size]
The Informant Leads Program coordinates and reviews information provided by the public to assist the CRA in identifying taxpayers who are violating tax laws. Lead information for this program pertains to domestic tax evasion allegations on the part of an individual or a business taxpayer. After reviewing elements of non-compliance with tax legislation, leads are provided to the corresponding compliance program for appropriate action.
 
westcoastfella
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Posts: 1581
Joined: Fri Mar 23, 2007 8:11 am

Re: Basement suite tax bomb explodes

Sun Oct 16, 2016 8:34 am

Geyser wrote:
The CRA has the courts on its side. Capital Gaind Tax is payable on rental basement suites. How long before they start looking for the rental income cheats too?


http://househuntvictoria.ca/2016/10/07/do-you-have-to-pay-capital-gains-tax-on-your-suite/

Um.... the "house" that is the subject of this court case is a duplex.  The unit is completely self contained (and was built that way), has no access from inside the main house at all, and has a separate municipal address.  This is not a run-of-the-mill basement suite, so I'm not sure what its a precedent for.
 
Geyser
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Topic Author
Posts: 3564
Joined: Tue Jun 05, 2012 5:26 pm
Location: In a van down by the river

Re: Basement suite tax bomb explodes

Sun Oct 16, 2016 4:19 pm

westcoastfella wrote:
Geyser wrote:
The CRA has the courts on its side. Capital Gaind Tax is payable on rental basement suites. How long before they start looking for the rental income cheats too?


http://househuntvictoria.ca/2016/10/07/do-you-have-to-pay-capital-gains-tax-on-your-suite/

Um.... the "house" that is the subject of this court case is a duplex.  The unit is completely self contained (and was built that way), has no access from inside the main house at all, and has a separate municipal address.  This is not a run-of-the-mill basement suite, so I'm not sure what its a precedent for.

So if the house has a secondary suite in the original plan it's taxable, but you think if the seperate living unit is created later, the CRA will ignore it?  Good luck with that.

As others have pointed out, the devil is in the still unknown details of the mandatory declaration concerning the "description of the property". Maybe the CRA won't be interested in the potentially massive, nation-wide, Capital Gains and undeclared income taxes they are entitled to.  Before you may be tempted to sign any inaccurate declaration, remember the snitch line! :shock:
 
VanLord
Real Estate Talker
Posts: 287
Joined: Fri Aug 24, 2007 3:52 pm

Re: Basement suite tax bomb explodes

Sun Oct 16, 2016 7:07 pm

Geyser wrote:
westcoastfella wrote:
Geyser wrote:
The CRA has the courts on its side. Capital Gaind Tax is payable on rental basement suites. How long before they start looking for the rental income cheats too?


http://househuntvictoria.ca/2016/10/07/do-you-have-to-pay-capital-gains-tax-on-your-suite/

Um.... the "house" that is the subject of this court case is a duplex.  The unit is completely self contained (and was built that way), has no access from inside the main house at all, and has a separate municipal address.  This is not a run-of-the-mill basement suite, so I'm not sure what its a precedent for.

So if the house has a secondary suite in the original plan it's taxable, but you think if the seperate living unit is created later, the CRA will ignore it?  Good luck with that.

As others have pointed out, the devil is in the still unknown details of the mandatory declaration concerning the "description of the property". Maybe the CRA won't be interested in the potentially massive, nation-wide, Capital Gains and undeclared income taxes they are entitled to.  Before you may be tempted to sign any inaccurate declaration, remember the snitch line! :shock:

we will make sure we inform you and everyone else about our tax returns.  I'm using the Trump writeoffs so I should be okay !!!
 
Geyser
Real Estate Talker
Topic Author
Posts: 3564
Joined: Tue Jun 05, 2012 5:26 pm
Location: In a van down by the river

Re: Basement suite tax bomb explodes

Sun Oct 16, 2016 8:01 pm

VanLord wrote:
Geyser wrote:
westcoastfella wrote:
Um.... the "house" that is the subject of this court case is a duplex.  The unit is completely self contained (and was built that way), has no access from inside the main house at all, and has a separate municipal address.  This is not a run-of-the-mill basement suite, so I'm not sure what its a precedent for.

So if the house has a secondary suite in the original plan it's taxable, but you think if the seperate living unit is created later, the CRA will ignore it?  Good luck with that.

As others have pointed out, the devil is in the still unknown details of the mandatory declaration concerning the "description of the property". Maybe the CRA won't be interested in the potentially massive, nation-wide, Capital Gains and undeclared income taxes they are entitled to.  Before you may be tempted to sign any inaccurate declaration, remember the snitch line! :shock:

we will make sure we inform you and everyone else about our tax returns.  I'm using the Trump writeoffs so I should be okay !!!



:lol:  If the current collapse in prices results in a full revision to the mean average, your tax writeoffs won't be needed. :lol:
 
VanLord
Real Estate Talker
Posts: 287
Joined: Fri Aug 24, 2007 3:52 pm

Re: Basement suite tax bomb explodes

Sun Oct 16, 2016 8:15 pm

Geyser wrote:
VanLord wrote:
Geyser wrote:
So if the house has a secondary suite in the original plan it's taxable, but you think if the seperate living unit is created later, the CRA will ignore it?  Good luck with that.

As others have pointed out, the devil is in the still unknown details of the mandatory declaration concerning the "description of the property". Maybe the CRA won't be interested in the potentially massive, nation-wide, Capital Gains and undeclared income taxes they are entitled to.  Before you may be tempted to sign any inaccurate declaration, remember the snitch line! :shock:

we will make sure we inform you and everyone else about our tax returns.  I'm using the Trump writeoffs so I should be okay !!!



:lol:  If the current collapse in prices results in a full revision to the mean average, your tax writeoffs won't be needed. :lol:

actually taking your advice and renting out my current principal residence to take advantage of the capital loss !!! :) Then again if you never sell you never have to worry about it.  I'll take my million in rental income over the next ten years, that's a sure thing.  
Although, I'll bet prices are higher in ten years...on a nominal basis which will be ok by me, since tenants will have paid off a good chunk of the mortgages....and if interest rates go up, that's ok too...bigger write-offs, and inflation will be driving up rents and lowering the debts in real terms.
 
westcoastfella
Real Estate Talker
Posts: 1581
Joined: Fri Mar 23, 2007 8:11 am

Re: Basement suite tax bomb explodes

Mon Oct 17, 2016 6:15 am

Geyser wrote:
westcoastfella wrote:
Geyser wrote:
The CRA has the courts on its side. Capital Gaind Tax is payable on rental basement suites. How long before they start looking for the rental income cheats too?


http://househuntvictoria.ca/2016/10/07/do-you-have-to-pay-capital-gains-tax-on-your-suite/

Um.... the "house" that is the subject of this court case is a duplex.  The unit is completely self contained (and was built that way), has no access from inside the main house at all, and has a separate municipal address.  This is not a run-of-the-mill basement suite, so I'm not sure what its a precedent for.

So if the house has a secondary suite in the original plan it's taxable, but you think if the seperate living unit is created later, the CRA will ignore it?  Good luck with that.

Not necessarily.  But if the secondary suite is in the original plan, it would be very difficult to argue that your intention was not to rent it out for income.

The real smoking gun in this case was probably the fact that the unit had no access from inside the house, and only a separate entrance.  The above meets the textbook definition of a duplex, so it should be no surprise that he got dinged on it.  I don't think anyone would argue that selling both parts of a duplex as your primary residence is wrong.
 
Geyser
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Topic Author
Posts: 3564
Joined: Tue Jun 05, 2012 5:26 pm
Location: In a van down by the river

Re: Basement suite tax bomb explodes

Mon Oct 17, 2016 11:46 am

westcoastfella wrote:
Geyser wrote:
westcoastfella wrote:
Um.... the "house" that is the subject of this court case is a duplex.  The unit is completely self contained (and was built that way), has no access from inside the main house at all, and has a separate municipal address.  This is not a run-of-the-mill basement suite, so I'm not sure what its a precedent for.

So if the house has a secondary suite in the original plan it's taxable, but you think if the seperate living unit is created later, the CRA will ignore it?  Good luck with that.

Not necessarily.  But if the secondary suite is in the original plan, it would be very difficult to argue that your intention was not to rent it out for income.

The real smoking gun in this case was probably the fact that the unit had no access from inside the house, and only a separate entrance.  The above meets the textbook definition of a duplex, so it should be no surprise that he got dinged on it.  I don't think anyone would argue that selling both parts of a duplex as your primary residence is wrong.

I agree with some of your comments, being "a self-contained living unit" appears to be the test. It's own exterior entrance appears to be a strong indicator that it fits the description. The other obvious test is whether or not it has actually ever been used to generate income. It would take a pretty gutsy homeowner to deceitfully sign a declaration that it hadn't. CRA treats accidental oversights a lot differently to deliberate false claims.
 
VanLord
Real Estate Talker
Posts: 287
Joined: Fri Aug 24, 2007 3:52 pm

Re: Basement suite tax bomb explodes

Mon Oct 17, 2016 7:45 pm

Geyser wrote:
westcoastfella wrote:
Geyser wrote:
So if the house has a secondary suite in the original plan it's taxable, but you think if the seperate living unit is created later, the CRA will ignore it?  Good luck with that.

Not necessarily.  But if the secondary suite is in the original plan, it would be very difficult to argue that your intention was not to rent it out for income.

The real smoking gun in this case was probably the fact that the unit had no access from inside the house, and only a separate entrance.  The above meets the textbook definition of a duplex, so it should be no surprise that he got dinged on it.  I don't think anyone would argue that selling both parts of a duplex as your primary residence is wrong.

I agree with some of your comments, being "a self-contained living unit" appears to be the test. It's own exterior entrance appears to be a strong indicator that it fits the description. The other obvious test is whether or not it has actually ever been used to generate income. It would take a pretty gutsy homeowner to deceitfully sign a declaration that it hadn't. CRA treats accidental oversights a lot differently to deliberate false claims.


Yes gross negligence has a steep penalty as the article says the guy would have been much better off to just claim the gain

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