Taxes and Canadian Real Estate

We are told many times when we discuss real estate at our seminars to "dumb things down". We naturally assume that everyone knows all about how real estate can be used to reduce taxes, capital gains issues, and all that other fun stuff.  This article will attempt to explain the basic tax implications one encounters when realizing a profit (or capital gain) from real estate.  For those that are not sure what a "capital gain" is....it is simply the profit you made on something you bought (or invested in). For example you buy a house for 100k. In 10 years you sell it for 185k. You made a capital gain (profit) of 85k.

At Educate not Speculate.com we teach both aspects of investing in real estate, personal and investment. So for discussion purposes, we need to separate your personal home from your real estate investment property.  We do this because from the tax mans perspective, he views them differently as well. 

In Canada your personal home is your residence. It is where you live be it Barrie Ontario or Lethbridge Alberta. It is the address you put on your drivers license. It's where you get your mail and collect all your bills. We stress these points because the Canadian tax man does. You see your personal home can make you a lot of money. A lot of TAX FREE MONEY.  In fact Educate not Speculate is in business because so many people have made money on their personal residence, that they have followed our guidelines on utilizing "Lazy  assets" in their home for even more profits (see ENSIS -Course 5).  From a retirement perspective your personal home is where a lot of tax free "capital gain" exists. Simply put, YOU ARE NOT TAXED ON THE CAPITAL GAIN IN YOUR PERSONAL HOME. In lay mans terms, all the profit you make from your personal residence is TAX FREE.

Your Investment Real Estate is another story. How you set up your real estate business and how you pay tax on it is an important point ( see ENSIS Course 6). For purposes of this article we are discussing the Capital Gains tax ( profit) you pay on your investment real estate. For any property that is NOT your personal residence, you will pay tax on 50% of the profit you make. For example you buy a rental property for 100k. In 5 years you sell it for 125k. You made a 25k capital gain on your investment ( minus your renovations/upgrades ... see ENSIS Course 11 on how to save money doing this). Now the government says we have to pay tax on 50% of the 25k, which is 12.5k. That is, you pay tax on 12.5k. And the amount of tax you pay is based on your personal tax rate. So for this example lets say your personal tax rate is 30%, you're going to pay 30% of 12.5k, which equals $3750.00. Therefore your total profit after tax is 25,000-3750= $21,250

Your accountant is the best person to review all this with as well. But keep in mind this is a simplified version of paying tax on investment property in Canada. There are many other options available to reduce taxes further by following the strategies laid out in the course materials at www.educatenotspeculate.com

As well Mana Investments ( www.manainvestments.com) can walk you through all the complexities of investing in Canadian real estate for the first time. We have developed tried and true options to help you find, buy, and manage your investments. We focus on Central Ontario, Barrie, Orillia, Collingwood, Innisfil and Midland because from our economic research we believe that these towns have good growth potential over the next 10-15 years.  We firmly believe and TEACH that real estate is about education....not speculation. For information on upcoming seminars please visit www.educatenotspeculate.com             

For more info: (705)-812-1033

Email: mark(at) manainvestments com

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