Tax on New Land Purchase

by Sheila
(Near Vanderhoof, BC, Canada)

We recently purchased some land and are having it subdivided and then wish to sell each piece separately.

My question is...will we have to pay capital gains tax or income tax on the money we might get from such sales?

Thank you in anticipation for your help.

Sheila

Hi Sheila,

Yes, you have to pay capital gains tax on the sale of real estate.

A taxable capital gain is taxed at 50% of a capital gain. This rate is less than tax paid income.

Check out CRA publication ITR456R Capital Property - Some Adjustments to the Cost Base for costs that can be added to the price of the land such as legal fees and commissions.

You will also be able to claim the outlays and expenses incurred to sell the property ... so keep all your receipts. See How do you calculate your capital gain or loss? on the CRA website.

Your capital gains will be reported on Schedule 3 and line 127 of your personal tax return if the land is held in your name.

Hope that helps.

Comments for Tax on New Land Purchase

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Jul 23, 2010

Tax on new land purchases
by: Anonymous

Thank you for the info. I was informed that we would have to pay income tax on this land so that is great news that it is capital gains tax which as I understand it is only taxed on 50%. Not sure how to access the CRA publication but will have a go ! Thank you for your help.

Jul 23, 2010

Personal Investment
by: Anonymous

Sheila, just google "ITR456R Capital Property - Some Adjustments to the Cost Base" and select the one at cra-arc.gc.ca

Capital gains is a form of income tax ... and I was assuming you and your husband were not running a business ... but making a personal investment in some land.

If you have a business that develops property ... your land purchase may need to be classified as inventory instead of as a capital asset. The treatment is different.

For this you want to see CRA publication IT-153R3 Land Developers - Subdivision and Development Costs and Carrying Charges on Land.

P.S. I would like to remind you there is a difference between information and advice. The general information provided in this post or on my site should not be construed as advice. You should not act or rely on this information without engaging professional advice specific to your situation prior to using this site content for any reason whatsoever.

Jan 18, 2012

Business Income vs Captial Gains
by: Lake

The Knowledge Bureau has an excellent article this week (January 18, 2012) on how to distinguish the difference between business income and capital gains.

This paragraph made me think of the question posted above:

"Degree of organization. When a taxpayer deals with property in much the same way as a dealer would, the resulting profit will probably be characterized as business income. For example, a taxpayer, who purchases undeveloped land that he or she then subdivides and sells for profit, behaves as a developer would in the normal course of business — and is taxed as such."

You can read the entire article at:

www.knowledge bureau.com> eTools> Knowledge Bureau Report> Archives (after about one month)> Distinguishing Business Income from Capital Gains

Sorry I don't provide the live link anymore because the URL for these articles changes.

Jan 19, 2012

business income versus capital gains
by: Anonymous

I was unable to find this article..any suggestions as to how i can do this ?

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Right now, if you click on their back issue that says "January 18, 2012, at www.knowledge bureau.com> eTools> Knowledge Bureau Report> ... you will find it under the "Your News" section.

Jan 20, 2012

Tax on new land purchase
by: Anonymous

Thank you so much. I have found it.

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