The Federal Court of Appeal recently confirmed a CRA assessment against a real estate developer, that profit from a quick sale of real property lots was business income as opposed to capital gains. This is significant because capital gains income is taxed at 50% as opposed to ordinary business income which is taxed at 100 %.
Briefly the facts are: A real estate development company acquired a number of lots between 2006 and 2008 for development as a mixed use commercial and residential project near a proposed train station that would link the site, located in the City of Mascouche, by train to Montreal. The Court of Appeal said that there was no reversible error by the Tax Court below in confirming the CRA’s assessment that gains realized from various sales of the lots before construction had commenced were income and not capital gains.
The Tax Court below had concluded from the evidence that the taxpayer’s sole motivation at the time of the acquisition of the land in question was to resell it at a profit, and had never intended to carryout the development project.