Why Canada Is An Ideal Frontier For Real Estate Investors
Tuesday May 19th, 2020
What can be more lucrative than owning a property in Canada – the country with the best real estate market. But before you enter the fray, you need to understand the Canadian laws that are applied to real estate investments.
To start with, there is no citizenship or residency requirement for owning or buying a property in Canada. Although one can get a Canadian residence temporarily, to become a permanent resident its mandatory to fulfill immigration requirements. A non-resident can also own a property for rental purposes after filing complete annual tax returns.
When buying a property in Canada, investors are mandated to pay a provincial transfer tax that differs from province to province, but it is usually around 1% on the first $200,000 and 2% on balance. There are some exceptions if you are buying a property in Canada for the first time. Municipalities also charge annual property taxes, depending on the market value of your property. Schools, universities, and other fees are included in this municipal tax. If you are planning to buy a property, get details on the present municipal tax.
You can obtain a partial rebate for new and builder-renovated homes. Federal Goods and Services Tax (GST) is applied to the new home purchases, however, the GST doesn't apply to resale homes.
Taxes on Rental Property
According to the Canadian Income Tax, 25% of the gross property rental income is dispatched every year. But non-residents are allowed to pay 25% of the total rental income after expenses by fulfilling the requirements of an NR6 form. In case of a net loss of the rental property, you can reclaim previously paid taxes. Your income will be handled depending on whether you are a partner or co-owner.
To earn rental income, there are two kinds of incurred expenses – capital expenses and current operating expenses.
Capital expenses offer long-term advantages. The cost of equipment for a rental property cannot be deducted against your rental income for the year. But the cost can be subtracted in years, as these items decrease in value with time. This type of deduction is called the capital cost allowance (CCA).
In Canada, property taxes, bank loan, mortgage, and line of credit interested are considered tax-deductible if it's an investment property.
Home Equity Loans
With the home equity line of credit or reverse mortgage, you can get equity out of your Canadian residential property.
Homeowners with 60 years of age or older can go for a reverse mortgage option to take out consistent payments that make a sum up to 40% of the home's current considered value. There is no requirement of repayment and proceeds are tax-free. The capitals can be invested, the interest expense can be written off, and the homeowner can live in the house as long as they wanted. In case the homeowner sells the home or passes away, the loan ends as it is paid off with the profits of the sale.
The second mortgage is a HELOC that can secure a loan or a credit line. You don't have to pay a specific amount, instead; it offers a flexible payment option without any penalty, and you can pay it at any time. It is a more convenient option than a traditional mortgage.
All in all, Canadian laws are not-so-strict when it comes to real estate. You don't have to live in Canada or have Canadian citizenship to get tax deductibles on different taxes like property taxes and interest expenses. However, you should be aware of each aspect of tax implications for profitable investment. From owning the property to renting it, and eventually selling it – this article is a perfect guide about taxation in real estate in Canada.
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