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How Much Was It Worth on December 31, 1971?

Written by Posted On Tuesday, 05 March 2002 00:00

Even at the reduced rate of 50%, capital gains can take a bite out of profit from the sale of an asset, so Canadians should take advantage of every tax exemption available to them. For John Boychuk (identity protected), who owned farmland before capital gains came into effect on December 31, 1971, any profit earned up to that date is exempt from capital gains.

For income tax purposes, profits are calculated based on value as of the last day of 1971 when capital gains began -- the Valuation Date – or the date the property was purchased or acquired, which ever is more recent.

Last year, Boychuk sold 160 acres of prairie farmland he owned since 1967 when the property had been arbitrarily assigned a value of CN$3,000. Since the land was three provinces away, Boychuk had no idea how to find out what his property was worth 30 years ago. The 2001 sale price was $32,000 and unless Boychuk can prove some appreciation by the Valuation Date, he'll have to add about $14,000 to his taxable income.

When you sell your home or a residential property designated as your principal residence, any profit you make is exempt from capital gains.

However, dispose of your cottage, an investment property or vacant land and you must include 50% of the capital gain with your taxable income for the year in which you sell. Capital gains are not taxed at a flat rate, but at your marginal tax rate.

According to The Canadian Institute of Chartered Accountants , a capital gain is the difference between the selling price or disposition value and the adjusted cost base (ACB) of the property, minus any expenses or commissions required to complete the sale. The higher the ACB, the lower your capital gain. The ACB includes the price you paid plus improvements like additions and renovations, but does not include maintenance costs such as repainting or heating buildings. Expenses incurred to buy or sell the property, such as real estate commissions and legal fees, are included in the cost of purchase and deducted when you sell the property.

"Canada's taxation system is a self-assessment system, therefore, we rely on the client in providing income amounts," explained Michel Proulx of the Canada Customs and Revenue Agency (CCRA). "When it comes to real estate, again the onus is on the client to determine the value.

"There are various methods to do so. There are property appraisers, however a fee would more than likely be charged. One method that is sometimes used in the real estate realm is comparable listings. The client can do this himself. This would mean that the client would compare the property he/she holds to similar listings that have already sold and determine a value.

Appraiser David Clark AACI of Island Appraisal Services Ltd. in Duncan, British Columbia, encouraged Canadians who live near the property in question to visit local or regional CCRA tax services offices and look through the records themselves.

"V-day -- that's the only date there is," said Clark, explaining that appraisers base their fees on the work to be done, so that an appraiser's per diem rate over the 3 or 4 days it might take to research V-day value could easily drive the fee into thousands of dollars.

"This was vacant land so we would base value on the direct comparison approach and compare the subject property to a number of sales in and about the V-date. About 1972, [the CCRA] produced a set of micro fiche which had all of the sales that had been transacted on or about December 3, 1971."

That means appraisers who have these records offer fee-for-service V-day valuation and local or regional tax services offices provide the opportunity for do-it-yourself valuation using sales records going back into late 1969 and as far forward as 1972 or 1973.

Although no documents have to be filed with the tax return, keep all the information you use to arrive at fair market value on V-day just in case.

"If at any time the stated value is questioned by the CCRA, we have appraisers on staff that will conduct an appraisal of the property," said Proulx. "Afterwards, if the client does not agree with the CCRA appraisal, the normal appeal mechanism is available."

If the CCRA decides the V-day value was inflated and your appeal is unsuccessful, you'll owe interest on any outstanding amount as of April 30 of that year. The CCRA has little or no sympathy for property owners who did not take steps to establish value back in 1971. Which still leaves John Boychuk thousands of miles away from the CCRA records he needs.

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