Is the profit on selling raw or vacant land in Ontario a capital gain?

Whether a profit from selling raw or vacant land is taxed as a capital gain or fully taxable business income depends on your intention and the facts of the situation. Under the federal Income Tax Act, the characterization of land profits has been one of the most litigated issues in Canadian tax law.

If you purchased land as a long-term investment with no specific plan to develop or resell it in the short term, the CRA and the courts are more likely to accept capital gain treatment. However, if you purchased land with the intention of developing or reselling it at a profit, or if you regularly buy and sell land, the profits are more likely to be characterized as business income — fully taxable with no inclusion rate reduction.

The CRA looks at all the circumstances: how long you held the land, your reason for purchasing, whether you made any improvements to facilitate sale, how many similar transactions you have completed, and whether you are related to a developer or builder. The primary intention at the time of purchase is particularly important, but secondary intention (i.e., you would sell if prices were right) can also shift the characterization toward business income.