Capital Gains Tax on a Vacant Lot

(Ontario)

Question:

Does my client have to pay capital gains when he sells the VACANT LOT that he bought two years ago?

Answer:

Your technical question is whether he has to “pay” capital gains. The Answer is “maybe”. The gain will qualify either as a capital gain or income. If there are a few properties, then it’s pure income, and that’s double the capital gain rate.

If there’s just one property, I suppose the first issue is whether the principal residence exemption would offer any relief. That’s unlikely if no one ever lived there. But, if there was a small building on the property, or it’s a cottage property, then this exemption should work. If there’s nothing on the property and never was, then this exemption is not available.

Then, you need to calculate the capital gain, so there are expenses on acquisition, maintenance and disposition. Assuming you still showing a gain, then only half of that amount needs to be included, that’s the taxable capital gain. If there is no other income at all, then there’s no tax payable. If there are capital losses (from stocks or other places) then they can be deducted. Other losses should be triggered, if possible to create deductions.

That leaves us with the net/net situation. Assuming that it is a capital gain and assuming taxable income of $30,000 or more from other sources, then the rough calculation would be that 25% of the capital gain is the actual tax payable. A VTB can spread that out over a period of up to 5 years. But, if the client is likely to have $30,000 in other income next year and the year after that, then, there’s not much point.

Brian Madigan LL.B., Broker

www.OntarioRealEstateSource.com