it's 2008 tax time

QuickTax

• Continue your Return • What is QuickTax? • How it Works • QuickTax Questions • Netfile Status - Available

Evelyn Jacks

Evelyn's Bio Essential Tax Facts Purchase Now!! Other Resources: • Top 10 Yr End Tax Planning Tips • Over 50 Changes for 2004 Family Tax Filers • Story Archive Other Great Books: • Make Sure It's Deductible • Tax Secrets for Tough Times

tax features

• Tax home • Tax tips • Tax school

helpful tools

Frequently Asked Questions CCRA Phone Numbers Snowbirds & Taxes RRSP & Taxes RESP & Taxes Tax Shelter Investments Small Business Taxes Small Business Losses Employee or Contractor? Shareholder-Manager Remuneration Investment Tips U.S. Citizens CGA Ontario Tax Planning Guide CGA Ontario Information Bookets

want tax forms?

• 2008 Tax Forms • 2007 Tax Forms • 2006 Tax Forms • Frequently Requested   Forms To view any of the forms online, you will need to download the freely available Adobe Acrobat

Usually, you have a capital gain or capital loss when you sell or are considered to have disposed of a capital property. The question as to whether or not a property is a capital property can be a difficult one to answer. The judgment depends on both the nature of the property and the manner in which the owner manages the property. If the owner intends to realize a profit from the property versus hold the property for the income it produces, the gain or loss realized on sale is treated as an ordinary income gain or loss as opposed to a capital gain or loss.

Often it helps to understand the difference between capital and income in relation to the taxpayer's intention by thinking about the scenario of a tree and its fruit. If the taxpayer bought the tree with the intention of selling the fruit, then any subsequent sale of the tree would be on account of capital. If, however, the taxpayer purchased the tree intending to sell the tree and make a quick buck, then the transaction would be treated as income — and 100 percent of any gain would be taxable.

In deciding whether the gain or loss is on account of income or capital, the tax courts have used the following tests:

• The period of ownership: If property has been held for only a short period, it may be considered to have been purchased to be resold and the profits may therefore be treated as income. A property held for a longer period is more likely to be treated as capital.

• Improvement and development: Where a systematic effort has been made to make a property more marketable, it may indicate a business of selling properties.

• Relationship of the transaction to the taxpayer's ordinary business: (for example, the sale of a renovated home by a general contractor) The more similar the transaction is to the taxpayer's ordinary business, the more likely it is that the transaction will be treated as income.

• Reasons for and nature of sale: If the sale of a property is the result of an active campaign to sell it as opposed to the result of something unanticipated at the time of purchase, the profits may be considered on account of income.

• The frequency of similar transactions: A history of buying and selling similar properties, or of quick turnovers, may indicate the taxpayer is carrying on a business. Falling offside on one of these tests does not mean the transaction will automatically be considered capital or income. The courts look at the larger picture, and you may have the opportunity to argue either way.

All Lessons | Previous Page | Next Lesson

Provided by CDG Books Inc. Authors of "Taxes for Canadians for Dummies"