The following text may have been generated by Optical Character Recognition, with varying degrees of accuracy. Reader beware!

'apital gains exemption rules can be confusing out rules. In the February I992 federal budget, regulations were introduced to restrict claims under the exemption for gains on most types of real estate, including homes and investment or rental properties. The principle residence exemption was not affected by the new restrictions, so essen- tially second homes, such as cottages, ski chalets, or Florida condominiums, and rental properties were affected. The capital gains exemption is only available to indr. viduals, so any real estate must be person- ally owned. The new rules state that, when a proper- ty that was owned before March 1992 is sold, the exempt portion of any gain will be pro-rated evenly over the number of months of ownership before March 1992. Thus, if a cottage or rental property was owned for 18 months before March 1992, and for 18 months after February 1992, half of any gain will qualify for the capital gains exemption. Any gains on real estate acquired after February 1992 are not eligi- ble for any portion of the exemption. However, real estate that is owned per- sonally or through a trust, and is used in an active business, continues to qualify for the full exemption and any gains will not be restricted under the 1992 rules. Generally, an active business is any type of business that is not an investment business. Thus, most businesses qualify. In a typical situa- tion, you would either lease the property to an incorporated active business or you would own the property which would be used in your unincorporated business. Most rental property businesses are not active businesses. To qualify as an active business, you would generally have to own a larger rental complex or several smaller properties, and you must employ at least six people, one of whom can be yourself. Moneycare is general financial advice by Canada 's chartered accountants. Rory Keilty is a tax partner with Arthur Andersen d Co.