How to Invest in Real Estate in Canada
The Ins and Outs of Investing in Canadian Real Estate
It is possible to fare quite well financially through investing in Canadian real estate, but it is vital that you understand the tax laws that are applicable to this type of investment.
First of all, it is worth pointing out that Canada has no citizenship or residency requirement for purchasing and owning real property. You are allowed to dwell in your property temporarily, but if you want to change your status to permanent residency or stay for an extended period of time, there are immigration requirements for you to follow as well. You can even own rental property within Canada without residing in the country, but you will have to file yearly tax returns with the CRA (Canada Revenue Agency).
Investing in Real Estate in Canada
Buying real estate makes you liable for a provincial transfer tax for the property. Each province sets its own rates, but a typical levy is 1 percent on the first $200,000 in value, with a 2 percent levy on the rest. There are some exemptions (again, these vary by province), especially on your first real estate purchase. Some cities also levy property taxes on a yearly basis, coming from the assessed value of the property, which is a reflection of the existing market value. This city property tax funds schools and provides for other services as well. When you start looking at a particular listing, your realtor should be able to give you the information about the existing provincial transfer taxes and the municipal taxes.
When you buy a new home, the national Goods and Services Tax (GST) applies, but you can generally get a partial tax rebate for a home that is new or has extensive builder renovations, if you’re going to live in that home. This tax is not applicable within the resale market.
If you are investing in the property as a rental, the Canadian Income Tax Act mandates that 25 percent of the gross rental income go to the government. If you do not live in Canada, though, you can fill out an NR6 form and only pay 25 percent of the net income. You can deduct capital expenses and current operating expenses. You will get more long term benefit out of deducting capital expenses, because you can amortize those costs over a number of years and the renovations and other expenditures dwindle in value. If your property is an investment — either as a rental or as a property you plan to sell for a profit — you can deduct line of credit interest, mortgage interest, bank loan interest and property taxes.
Investment Real Estate Canada
When you sell the property, if you are a Canadian resident and use the property as your primary residence, there is no capital gains tax. However, if you are not a resident, the Canadian federal government withholds 50 percent for withholding, and you have to provide your buyer with a CRA-provided certificate of clearance. This means that all the taxes have been paid, and you’re not leaving the buyer holding the bag on any of it. If you are a resident but did not always use this particular property as your primary residence, you have to prorate the capital gain over the years when the property was not your primary residence. If you change the use of the property, such as moving it from being a primary residence to using it as a rental, you can end up on the wrong end of a “deemed disposition,” in which capital gains become taxable.
The best source for legal and tax advice is your own attorney and accountant or financial advisor. Amansad Financial is not qualified to provide advice at that level. We do have strong relationships with real estate professionals throughout Western Canada, and once you have determined the best strategy for your own investments, the realtors to whom we recommend you can help you find the perfect property for your situation. Our expertise does not include the tax laws of Canada, and so you are best served by seeking the counsel of a professional in that field before making an investment decision. Once you decide that real estate investing in Canada is right for you, though, we look forward to helping you so that you get the property you want — and the income you’re looking for.