Business - The best profit is a non-taxable one. Yet if you arent careful, Revenue Canada can sometimes surprise you by insisting on a share of your gain. The most common tax-free profit (or capital gain) is the one you make when you sell your puncipal residence. If you make, say, $40,000 when you sell your home, you get to keep all $40,000. (Note that you can keep your home as your principal residence for up to four years even if you move away and rent out the place. The four-year rule is waived if your employer transfers you as long as you move back before selling. Of course, you can have only one principal residence at the time. For more details, ask Revenue Canada for its Interpretation Bul- letin IT-120R3 Principal Resi- dence and Form T2091 Designa- tion of a Principal Residence.) However, if you make money. by regularly buying a home, fixing: it STRAIGHT TALK ABOUT YOUR MONEY. [iid ay Ti = a) i jh 2s E g j ERIN EEL UTE a fi] Jan] Febi [Mari }Aor May. GURNEY SMITH & ASSOCIATES LTD. FINANCIAL CONSULTANTS ¢ LIFE UNDERWRITERS SUITE 6 - 9843 2nd St., SIDNEY (In Marina Court) 1205 C Verdier Ave, (Brentwood Bay Shopping Centre) 652-1482 656-2411 up and selling it, Revenue Canada might consider that you are in business and tax your profits as full income. The same applies if you buy a place in a rising market with the intention of flipping it (reselling shortly to make a profit). In these cases you would be able to deduct your costs of doing business. But you’d have to declare your profit as income rather than a capital gain, which means it would be fully taxed. So if you do buy an old place to fix up with the idea you could sell it and, because it’s your principal residence, pay no tax on your profit, do so on an irregular basis. When you do sell, make it clear. you are motivated by non-financial TheReview Wednesday, June 19,1991 — A17 Teasons: you want to move fo a better neighborhood, your home is now too small (or too big), com- muting is a problem, it’s too noisy, and so on. For regular investments, the capital gains exemption allows you to make a profit of up to $100,000 on your investments and pay little or no tax. (If you sell a family farm or shares of a qualifying small business, the exemption is $500,000.) Let’s say you make a profit of $80,000 when you sell some reve- nue property or securities. You can then claim $80,000 of your $100,000 capital gains exemption and probably pay no tax. Because three-quarters of all Capital gains are taxable, you first declare a $60,000 taxable capital gain. You then claim an offsetting $60,000 of your $75,000 taxable Capital gains exemption — that $75,000 being three-quarters of the $100,000 capital gains exemp- tion. (Whenever you have a capital gain like this, always check the CNIL and AMT — cumulative net investment loss and alternative minimum tax rules. These could cause you to pay tax as a result of NEW CHANNELS — MORE CHOICE. As part of our ongoing and long-term commitment to enhance viewer variety and choice, we are pleased to add The Meena Network and Headline News, for your viewing pleasure. . = €BC French Knowledge Network KING NBC Seattle cE < feos Spy Opie py (enV (4) KCTS PBS Seattle TV Listings Shaw Cable KVOS Bellingham _ CKVU Vancouver ~ CFAX | = Pal Gable Series cece Geass) CLIP AND SAVE CABLE SERVICE GUIDE *ARE Arts The Weather Network = *TNN The Nashville Network 28 ~~ Vision TV 16 *TSN The Sports Network S 29 Superchannel 17 *WTVS PBS Detroit 18 *CNN Cable News Network 31 719 *Headline News * 20 *CMT Country Music Television / 32 21 *MuchMusic ~KCPQ Tacoma KSTW Tacoma KOMO Seattle CBC Newsworld YTV. 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TBS Atlanta Superstation Future U.S. Superstation S_ Available in Stereo TUNE TO TV LISTINGS 10 FOR UP-TO-DATE CABLE TV PROGRAM LISTINGS. AN Tips on avoiding taxes from property investments declaring a capital gain, although sometimes you can take steps to avoid or at least minimize this tax.) When you buy and sell revenue property, you must be careful or Revenue Canada could decide to tax as full income any capital gain you claimed tax-free under the exemption. Even if you have used up your capital gains exemption, you would declare only three- quarters of the gain as taxable — still a better deal than having the entire gain taxed as income. The key: buy the revenue property fo earn revenue, rather than fo resell for a profit’ The key: buy the revenue prop- erty to earn revenue, rather than to resell for a profit. It helps to have an investment plan which shows projected future rental income, your plans to maximize income, minimize expenses and so on. This is particularly important as many revenue properties operate at a loss, at least in the early years. Revenue Canada tends to look more closely at the speculator than at the investor. The speculator takes out the maximum mortgage possible. The expenses, mainly the mortgage interest, far exceed the rental income. The speculator then deducts these losses from other income, reducing tax. The speculator hopes the value of the property will go up more than his after-tax losses so he ends up with a good profit when he sells. Revenue Canada would tend to tax a speculator’s profits as income rather than as a capital gain. The investor, on the other hand, wants tO earn income from the revenue property, even if there are “startup”’ losses. If, when the property is sold, there is a capital gain, the investor considers that a bonus, not the main reason for buying the property. In this case, Revenue Canada is more likely to treat the profit as a capital gain, not as full income. Mike Grenby is a Vancouver- based columnist and independent financial adviser who. works with individuals; he will answer your questions as space allows in his column — write to him c/o The Review, P.O. Box 2070, Sidney, B.C. V8L 3C5. Is your tax bracket keeping your money boxed in? Call me today and find Ds out how Investors can help you save taxes. CALI R.T. (TOM) FITZ-GERALD 388-4234 Building ine since 1940.