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| *Ostroff, Fair and Company>>>Canada Taxes |
In Canada can interest and taxes be added to the ACB of a parcel of land when for 15 years there was no income |
I purchased a parcel of land 15 years ago with the goal to sell the land one day with a profit. I couldn't rent the land, because it was not a farm land. Again, the intention was to sell it for a profit. I paid interest and taxes during all those years, so can I add the interest and taxes I paid throughout the 15 years to the ACB of the land? If not, what happens to my loss? did you use the interest and taxes as deductions in the past (you should not have technically) on non personal property (you did not live there) that is not (has not) generated income the interest and taxes are added to the base cost of the property (this will help reduce your gain; it is not a capital gain though) a property that is purchased to be sold and not rented is treated the same way as inventory would be treated (you pay income tax, it is not a capital gain) if you have a loss it is applied against your income to reduce your taxable income Taxation 鈥?Lesson 7 CMA Canada - July 2004 Page 31 Business income versus capital gain In most cases, a business is readily identifiable by the nature of its activities. For example, the manufacture and development of computer chips for resale would constitute a business. Sometimes, however, it is difficult to distinguish whether income from a transaction is business in nature or capital gain. The sale of land can be either a capital transaction or a business income transaction depending on the facts of the circumstances. The distinction is important because, as you will see, business income is fully taxed whereas only one-half of capital gains are taxed. Moreover, business losses can be applied against all other sources of income (e.g. capital gains or employment income), whereas capital losses are only available for offset against capital gains. Business income is taxed less favorably while business losses are treated more preferentially. The full amount of business income is taxed in the year that it is earned while only one half of capital gains are taxable, in the year in which the gain is realized. Business losses, unlike that of capital losses, can be used to offset income from all other sources. The chief factor in distinguishing a business activity from a capital gain transaction is the intended use of the property on acquisition. The principal reason for the purchase and the subsequent use of the property will determine the type of income of the profit (loss) generated upon sale. If the property was acquired for the purpose of resale, then its disposition is likely business income. i.e. if the property purchased is considered inventory, then all profits triggered upon sale would be considered business income. Conversely, property acquired for the purpose of providing the owner a long-term benefit is likely capital property; its disposition creates a capital gain or loss, i.e. any gains generated upon the sale of capital assets used in the course of running a business are deemed to be capital gains. |
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