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Income tax — builder built home as personal residence

My clients, a married couple, were builders of custom homes. They sold their own home just over a year after building it, for $150,000 more than it cost them to build. They treated the gain as an exempt capital gain on a principal residence. Revenue Canada proposed to reassess them to tax them on the $150,000 as business income.

I wrote a detailed letter to the auditor, acknowledging that a builder who builds, moves into and sells a home is normally presumed to have done so in the course of business unless they can demonstrate otherwise. But in this particular case, the home was indeed intended to be their home and had many features that a home built for sale would not have. Furthermore, there was an unusual combination of circumstances, including an urgent need for a large home in the particular ethnic community, that led to my clients receiving an unsolicited high offer for the home at a time when they were losing money. I provided affidavits and documentary evidence to support these claims.

The auditor agreed and withdrew the proposed reassessment.

Problem vanished!

(1995)