I regularly get calls from people asking how long they have to live in a house before they can sell it without paying taxes. Many people believe that the answer lies solely in the timing of the transaction, that taxes can be avoided if they live in the house for at least one year. However, the Income Tax Act makes no reference to a specific time period. Rather, the determining factor is whether the profit qualifies as business income. If the profit is business income, it is taxable.
Based on the broad definition of business, any single property sale could be considered a business transaction. The resulting profit would be included in computing one’s income for the year. However, there is no provision in the Income Tax Act that specifically defines the elements of business income.
When the courts have been asked to make such a determination, they have considered many factors, including the property owner’s intentions, the nature of the taxpayer’s business or profession, and the terms of the financing used to complete the deal. When considering the length of time that the property was owned, courts will also examine the factors that motivated or triggered the sale and the location of the property.
The timing of a sale may not be significant if it stems from a couple who has separated. If an owner can no longer afford mortgage payments, a deal would not likely be considered a business transaction, irrespective of any profit. However, if a taxpayer regularly deals in real estate, such as a realtor or a home builder, it is more probable that gains stemming from a sale would qualify as business income. None of the factors will be conclusive on their own and the measure of their individual relevance varies from case to case.
– Elias Metlej is a real estate lawyer with the Halifax firm Blois Nickerson & Bryson. You can write to Elias at email@example.com
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