A capital gain is a gain on the sale or exchange of capital assets that meets the criteria for a capital gain as set out in the Income Tax Act.
Over the years, the determination has been made based on a number of factors:
Intention of the taxpayer
When a property is bought for investment, any resale profit could still be considered taxable as ordinary income if the apparent intent was resell for a profit at a future date.
Relationship to the taxpayer”s business
If a taxpayer uses expertise acquired in regular business activity to generate a profit on the purchase/sale of similar or related commodities, the Tax Court will undobtedly classify profits as taxable under ordinary business income.
Frequency of Transactions
Usually, frequency of such occurrences suggests the carrying on of a business for profit.
Nature of Transaction and Asset
Taxability as income may be indicated if the asset cannot normally be used either personally or for investment purposes.
Objects of the Corporation
The Tax Court will look at the articles of incorporation to determine if a transaction falls under the objects of the corporation, and if it is part of usual business.
Length of time held
Profits would likely be taxed as regular business income if a taxpayer buys and sells real estate on a regular basis.
The major exemption for real estate practitioners to consider involves a principle residence.
To qualify as a principal residence, following criteria must be met:
The taxpayer must own the housing unit, either jointly or solely;
A family unit may only have one principal residence;
The land upon which the housing unit sits cannot exceed one acre and any excess is not considered part of the principal residence unless the taxpayer can prove it is necessary for personal use and enjoyment;
The unit must be ordinarily inhabited in the year;
The unit must be designated as the taxpayer”s principal residence for the year.