The correspondent will purchase an income property, renovate the two existing housing units, and add a third unit in the basement if the necessary authorizations are received, and then resell the property within a year or two of the purchase.
If the property is sold within one or two years of its acquisition, will the proceeds of disposition constitute a capital gain? The Directorate responded:
The taxpayer's intention at the time of purchase of the immovable is an important factor to consider in determining whether a gain from its sale will be treated as business income or a capital gain. At the time of acquisition of the immovable, the taxpayer may have a secondary intention to resell it at a profit if the taxpayer’s original intention is abandoned. If the secondary intention is realized, any gain realized on the sale will usually be taxed as income from business.
Thus, if you purchase an immovable with the intention of reselling it at a profit within a few years, the gain from the disposition of the immovable will generally be considered to be income from a business.