A developer purchases a property for $2,000,000 in Alberta, subdivides it, and sells individual lots. The total sales revenue is $3,500,000, with development costs of $800,000. How will this transaction likely be taxed?
Correct Answer
A) As business income at 100% inclusion rate
When a developer purchases land for subdivision and sale, the Canada Revenue Agency typically treats this as business income rather than capital gains. The entire profit of $700,000 ($3,500,000 - $2,000,000 - $800,000) would be taxed as business income at the developer's applicable tax rate.
Why This Is the Correct Answer
When a developer purchases land specifically for subdivision and resale, the CRA treats this as business income, not capital gains. The developer's primary intention is commercial profit through development activities, making this a business transaction. All profit ($3,500,000 - $2,000,000 - $800,000 = $700,000) is taxed as business income at 100% inclusion rate, subject to the developer's marginal tax rate.
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A couple buys a resale home in British Columbia for $800,000. They do not qualify for the first time home buyers' or new housing exemption. What Property Transfer Tax must they pay?
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A developer purchases land for $1,000,000, builds a home for $800,000, and sells it for $2,200,000. If GST/HST of $286,000 was collected from the buyer, what is the developer's taxable income from this transaction?