By: Gigi Suhanic
You Ask, We Answer
Financial Post
June 22, 2002

Question: My wife and I are purchasing a piece of rural property on which to build a new residence. The seller, a retired farmer, has owned the property since the mid-1950s, and from 1964 until 1977, he severed and sold five lots to friends and one to a family member. There have been no severances since 1977. Does GST apply on the sale of this property? CCRA says it "likely does" as the land was severed into more than two parcels. Our accountant says GST will not apply, as the severances occurred before the GST existed, and the seller is not in the business of buying and selling land. What should be our argument when we request a written ruling from CCRA?

Answer: There is no simple answer on whether GST applies to farmland, says Adrian Mastracci of Vancouver-based KCM Wealth Management. Generally, the sale of vacant land is subject to GST. However, the sale may be exempt when an individual sells land not used for business purposes.

The sale of land that has been severed or subdivided into more than two parts is taxable, unless the purchaser is a relative or former spouse and is buying the land for personal use. Special rules apply if the land was previously subdivided or severed because of expropriation.

Special rules also apply to sales of farmland.

Some of the considerations of whether GST applies to farmland are whether the seller lived on the property and what sort of commercial undertaking, if any, was conducted on the property by the seller.

"My counsel to the purchaser, especially as the purchaser does not appear to be a GST registrant, is to stay out of the GST debate by placing the onus for any liability on the seller. After all, the seller and his advisors would have the background information," Mr. Mastracci says.

The purchaser may wish to structure an agreement with the seller whereby the price is exclusive of GST. Further, if any GST is payable, then it would be the responsibility of the seller. Professional counsel would be beneficial.

Question: What is the correct interpretation of the tax regulations regarding the treatment of accrued interest paid on buying bonds, especially for bonds purchased near the end of the year which do not have any taxable interest for that particular year?

Answer: "The purchaser of a bond may deduct the accrued interest paid to the extent that the interest is actually received by the investor in that year," says a vice-president of taxation and estate planning.

For example, accrued interest paid on a bond purchased on Dec. 15, 2001, that pays interest semi-annually on March 1 and Sept. 1, would only be deductible in the following year, (i.e. Dec. 31, 2002) as you would not receive your first interest payment until March 1, 2002.

Note, however, that this rule is often ignored with accrued interest paid being deducted in the year paid, regardless of whether income from that bond has been received that year.

Question: I have a stock that is no longer trading. What paperwork is required to satisfy Revenue Canada when I choose to claim the capital loss?

Answer: "I would simply complete the Schedule 3 of the personal tax return showing the proceeds from disposal as zero," says a financial planner.

Obviously, the subtraction of the original cost will then give a loss. Paperwork required would be the original trade ticket(s) showing the purchase and probably a statement from the broker showing the market value of the stock to be nil.

You might also have to prove that the stock no longer trades by requesting a letter from the broker stating that, although CCRA should have a listing of such stocks somewhere in its vast data bases.

"If it's Bre-X, it would be public knowledge that the stock no longer trades!"

NOTE: The information provided above is intended for general informational purposes only. It does not constitute advice for anyone's specific situation. Everyone should always first consult directly with their advisors to determine the appropriateness of any information contained above before taking any action. KCM Wealth Management Inc. assumes no responsibility for any loss or damage arising from the use of, or reliance upon the above information.