Inventory vs Capital Gains

[victoriaguy]

Hi,

I am a real estate developer and investor who has fixed up some properties, sold some, and rented some.

On my Canadian tax returns, I've always treated my properties as inventory, but have counted the sales as capital gains. I get that in the US, if property is inventory, it has to be ordinary income, not a capital gain.

My question is, if my property sales are sales of inventory, is the associated "ordinary income" considered "earned" income for the purposes of form 2555?

If the answer to that is 'yes', is it 100% excludable up to the threshold, as the 30% limit only applies where "capital" is an income producing factor?

I am confident I will establish myself as a real estate professional who has materially participated in each property, and I plan to present this as my trade/business as it comprises 90% of what I do for a living.

Thanks for any insights...

[JGCA]

I do not see how teh CRA has allowed you to treat proerty as Invetory yet when you sell it the gain is capital, you are definitly facing a potential tax problem in Canada once your file is closely examined . The only time I know one can elect to have capital gains treatment to asn Adventure in trade and business situation is on the sale of CND securities its a one time election, no such this applies to Real Estate.

Having said that then this is business income and can be excluded by way of from 2555 instaed of claiming FTC.

[victoriaguy]

Thank you JGCA. I'll look at my Cdn returns more closely in case I'm wrong (or my tax prof'l was wrong). Thanks for pointing that out.