Income Splitting & Deductions On Renovations

by Tax Guy - Burlington Accountant on January 2, 2009 Print This Post Print This Post

Question: My question is in regards to avoiding capital gains on a primary residence by transferring the gain to a low-income member of the family.  For example, if I earn $100,000 and my wife earns $40,000, and we buy and sell a house within 1 year.  Can the house be put into her name solely and any capital gains are taxed in her hands?

Response: Gains resulting from the sale of your principal residence are exempt from income tax.

If you plan is to acquire a second property that you do not ordinarily reside in, then there would be tax on any gains realized upon the subsequent resale.

In terms of naming your spouse as the registered owner in order to split income, the Income Tax Act looks through the legal ownership to determine who actually purchased the investment.

If for example, you provided the funds to purchase a property but registered the property in your spouses’ name, the gains on subsequent re-sale would be taxed in your hands.  If you financed 40% and you spouse financed 60% and you could prove each contribution to the acquisition came from their own funds then you could split the gain 40%/60% respectively.

Question: Thanks for answering that question.   I do have one more question.  It’s in regards to what items are deductible when you renovate your primary residence and sell prior to one year.  For example, if I spend $20,000  in renovations, can this total amount be deducted from my capital gain  as long as all receipts are kept?  Or are only certain items considered deductible?  Items such as work tools, materials, new appliances, transportation, lawyer fees.  Any insight would be greatly appreciated.  If you have any links listing these items, that would also be great.

Response: Normally you add capital improvement costs to your adjusted cost base to reduce gains. This includes direct materials, labour & contractor  fees, and permits. Tools and appliances would not normally be considered capital expenditures for residential property.  However, since the gain on the sale of a principal residence is not taxable, no deductions will be permitted from income.

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

Print This Post Print This Post

Comments on this entry are closed.

Previous post:

Next post: