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?
Correct Answer
C) $400,000 as business income
For developers, real estate transactions are treated as business income, not capital gains. The profit is calculated as selling price ($2,200,000) minus total costs ($1,000,000 + $800,000) = $400,000 business income. The GST/HST collected is remitted to the government and doesn't affect the income calculation, though input tax credits may be claimed on eligible expenses.
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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?
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