Real estate is hot and money is cheap. Everyone wants to get in right away and they think they’re going to make easy money. Although there are reasons for why real estate investment is easier today than it was in the past, if you don’t structure your investment properly from a tax point of view, even if you do make a lot of money, you may give a ton of it to the CRA. I’m Shayan Rashid, a partner at SRJ Chartered Accountants. In this video, we’re going to discuss five things that are pertinent to your decision in terms of making a real estate investment within Canada.
1. Capital Gains
Number one, Capital Gains. When you sell your property in Canada, you have to pay tax on the profits. That’s calculated at the half of the profits that you incur after you dispose of your property. It’s important to remember that the sales price of your property can be reduced by the amount you pay in commission income or any other professional fees. And also, your initial purchase price can be increased by the amount you pay in professional fees but also in land transfer tax and other ancillary fees that incur during your purchase.
2. Reporting Rental Income
Number two Reporting Rental Income. It’s important to remember that the rental income and the associated expenses have to be reported each year for any investment property. Even if you generate a lost, it still has to be reported. The main item that you have to consider or benefit is that if there’s a lost generated from the property, you can use this to off-set income from other sources.
3. GST/HST New Housing Rate
The third factor to consider is GST/HST New Housing Rebate. You have to insure that you’re reporting the correct details to the builder or else the CRA may audit you at a later date. We’re seeing this quite a lot lately, especially with people who own multiple properties.
4. Principal Residence Exemption
The fourth item that we’re going to discuss is the Principal Residence Exemption. You may be able to reduce the capital gains tax if you, or a family member lived in the property at any point in time.
5. CRA Audit
The last item that I want to talk about is the CRA Audit. We’ve seen the CRA be increasingly aggressive in terms of auditing speculators and real estate investors. You want to make sure that you have the correct documentation and you’re ready for the CRA in case they come to look at your books.
If you have any questions about the tax implications of your investments and how to properly structure it before you get into real estate in Canada. Make sure you give us a call so we can discuss the best way for you to move forward.