Capital Gains or Business Income – How will your real estate be taxed?

A recent article in the Financial Post suggests that CRA may not see your real estate investment as a capital gain but rather business income. Taxation-wise, the difference is significant with capital gains income being taxed at 50% and business income being taxed at 100%. house on calculator

The article spells out how this determination is made:

They include: the nature of the property sold, the length of time the taxpayer owned the property, the frequency and number of transactions carried out by the taxpayer, the improvements made by the taxpayer to the property, the circumstances surrounding the sale of the property and the taxpayer’s intention at the time the property was acquired, as indicated by the taxpayer’s actions.

So how you conduct your real estate affairs will largely determine at which rate you are taxed. For instance, if you are buying properties, doing quick renovations and then turning around and flipping them in the same year, you’ll likely be seen as conducting a business and therefore be taxed at business income levels.

Of course your principal residence may still appreciate in value without incurring tax on any profit made when it comes time to sell. The rest of your portfolio, when sold, will be considered either a capital gain or business income and the implications of that are very different as far as CRA is concerned.

Home Inspector Licensing Requirements to be Strengthened in BC

News out recently that home inspectors in BC will have more stringent licensing and continuing education requirements as of the end of 2015 (why rush it, right?). This article mentions that 78% of BC home inspectors themselves believe that requirements need to be more rigorous. If the inspectors themselves are sounding the alarm then you know this is a major concern.


Everyone knows purchasing real estate is fraught with potentially costly mistakes. It therefore seems obvious that a buyer would want a highly trained and regulated professional conducting a home inspection on their behalf. These forthcoming changes appear to be a better late than never response from the BC government.

Certain problems found in an inspection can be very serious and costly to remedy. Also, beware of choosing to forego the home inspection just because the home is newer or appears sound.

I’ve heard several stories about inspectors missing seemingly obvious problems in homes or being under-qualified to perform the necessary tasks. If you have had any troubling (or pleasant for that matter) experiences with a home inspection please let me know in the comments.



Strata Living: Not for Everyone

Living in a strata is a fact of life for many in the Lower Mainland and especially in Vancouver if home ownership is to be achievable. There are many benefits to strata life while at the same time some perils to watch out for. Below is a list in no particular order of things to be aware of in a strata living situation:

Breaking bylaws

Strata corporations may have bylaws that lean towards fascist in some respects. Examples might be whether or not you can barbecue on “your” balcony or if pets need to be leashed in common areas. A client of mine quickly amassed fines of several hundreds of dollars when her tenants left some empty boxes in the underground parking space. In extreme cases, strata unit owners can be compelled to sell their property if they break strata rules over time without any effort to alter their rule-breaking ways.

Self-determination (or lack thereof)

Important decisions like whether or not to undertake major repairs to a strata building will be decided on through a majority vote by strata members. That is, the strata members that bother to attend the AGM or SGM either in person or by proxy. I’ve seen important votes decided by less than 10% of the owners of a particular building because so many couldn’t be bothered to show up.

Naughty Neighbors

Just because you own a strata property does not guarantee that your neighbors will be quiet and neighborly. There seems to be a misconception that only tenants tend to be noisy and difficult to live next to. I know of many stories of strata owners that are nearly as bad or worse. Also, if you own in a strata and you end up not getting along with your adjacent neighbour it’s certainly not easy or inexpensive to move away as compared to a more mobile tenant choosing to move away.

I welcome questions you have about selling or buying.
Feel free to comment here or contact me directly.

Out of Touch Politicians and Vancouver Demolition Disincentives

According to Vancouver Councilor Heather Deal, adding $4,800 to the cost of demolishing a house in Vancouver may slow the high rate of homes being demolished to make way for new construction. This was reported by CBC News in an article on June 5, 2014:

Knocking down a small home with a backhoe costs as little as $12,000, and the deconstruction ban could increase the cost by at least 40 per cent, she says. Coun. Deal says part of the aim is to make people think twice about knocking down an older home simply to replace it. “It’s the sort of thing people should budget for if they choose to disregard the value inherent in that building,” says Deal.

If anyone thinks that that this nominal extra cost will deter owner-occupiers and developers from “deconstructing” pre-1940 homes and building new than they are not familiar with the Vancouver real estate market reality. If developers stand to make tens or hundreds of thousands, what difference will this really make?

House being deconstructed

The good news is that more materials would be diverted from the landfill and either recycled or reused if this motion gets passed by council. I would go a step further and levy a fee on property owners who demolish houses that are still viable and use that revenue generated for affordable housing projects. I know, not very likely to happen.

Proposal to increase BC’s Property Transfer Tax on Foreign Buyers

An interesting change to the province’s Property Transfer Tax proposed by the BC Chamber of Commerce would see some of the tax burden shifted to foreign buyers. There are some promising ideas in this option. Since the provincial government is unlikely to accept any reduction in the overall revenue from this tax (what a foolish concept), then maybe a shift of the tax from residents to foreign investors would be the best the residents of BC could hope for. Don Cayo’s article covers the proposal.

Taxes 12

Currently buyers (resident and non-resident) pay 1% on the first $200K of purchase price and 2% on the balance above $200K. The change would see a flat tax of 1% of any primary residence purchase for residents while non-residents would pay 2%. BC residents would still pay the current 1%/2% rate for non-primary residences.

I like the ideas here except I would also bump the tax on resident primary residence purchases to 1.5% on purchase price amounts over $1 million.

I welcome comments from others on this so feel free to comment below.

Vancouver Real Estate Marketing Company Says Young Vancouverites Can Afford to Buy Real Estate

Online Marketing Key Can Be Blogs Websites Social Media And EmaiThis just in: a recent article in The Huffington Post suggests that many Gen Y would-be home buyers are in a position to buy property now. And by property they mean very small condos – some even with balconies! According to a recent poll done by a prominent real estate marketing company (which the article author happens to head), the savings rate of this 20-35 year old demographic is quite respectable.

It’s quite likely this data is skewed since it was collected from potential home buyers attending one of Key Marketing’s projects being offered for sale – InGastown. Yes, these were people already interested in buying a condo in the very short term. Seems to me this would not be a reliable sampling of this entire demographic – just the ones who hope to buy now in a particular project. The InGastown project does have an interesting gimmick where you can trade your car in towards your down payment.

Finally, within this “article”, the author links to two projects his company is handling the marketing for.  In these projects, Gen Y buyers can purchase a home for under $300,000. So, is this an actual news item on Huff Post or a paid marketing piece?

Real Estate Marketing Euphemisms Translated

Real Estate Marketing Euphamisms Translated
Cartoon courtesy of Alistair Nisbit

While it may not be a widely known fact, Realtors have been known to use “creative language” to describe properties and their characteristics. Not shocked to hear this you say? Let’s delve into some examples of this phenomenon.

RealtorSpeak: Cozy!
Translation: Tiny. You may be able to touch two opposite walls with your body outstretched. You can always meet your friends at a cafe – who needs to entertain at home anyway?

RealtorSpeak: Needs TLC
Translation: Needs everything including paint, flooring and all appliances. Maybe even a new roof and perhaps a new foundation due to the large cracks in the existing one.

RealtorSpeak: Not a drive-by.
Translation: This thing looks atrocious from outside and we really need to get you inside to have any hope of you buying it. A late night showing would be preferable so you can’t see how awful the exterior is.

RealtorSpeak: Character house.
Translation: Most likely quirky and often run-down. It will help if you are keen on a very old structure and don’t mind drafts around windows and sloping floors.

RealtorSpeak: Fixer-upper!
Translation:  A tear-down and not worth doing any fixing. Please bring thick-soled, steel-toed boots for the showing. Overalls and possibly a gas mask will be beneficial.

There are hundreds more real estate marketing euphemisms not mentioned here. Please let us know if you have some good examples of your own in the comments below.

BC government increases tax threshold for first time home buyers

cp-bc-budget-balanceA select group of first time home buyers in BC received a gift from the province in the recent budget announcement. If you purchase your first home in BC and it is under $475,000 (full exemption) or $500,000 (partial exemption) you may be able to avoid paying all or part of the BC Property Transfer Tax (PTT). This tax is calculated at 1% of the first $200,000 and then 2% of the remaining purcahse price above $200,000.  This change is expected to only impact about 1700 buyers in BC in 2014.

To receive the full exemption you must:

  • be a Canadian citizen or permanent resident
  • have lived in B.C. for 12 consecutive months immediately before the date you register the property or filed at least 2 income tax returns as a B.C. resident in the last 6 years
  • have never owned an interest in a principal residence anywhere in the world at any time
  • have never received a first time home buyers’ exemption or refund

and the property must:

You may be eligible for a partial exemption from the tax if the property:

For all the details go to the province’s site here:

The old threshold was set at $425,000 so this is a moderate increase and will help some buyers out that would have missed out on the exemption. The real estate sector has been lobbying with only moderate success for the BC government to increase this threshold for several years. The government seems to have made the smallest change possible while still being able to make this part of their budget highlights announcement.

Five reasons to get a mortgage financing pre-approval

So you think you’re ready to start shopping for a property? Whoa Nelly! While it may seem like you’re ready because you’ve done lots of online property window shopping and begun to feel confident about comparing market values, you’ve missed a crucial step in the process. Here are five reasons to get a mortgage financing pre-approval early:


Time savings

Does it make sense to look at a smorgasbord of properties that you have absolutely no chance of purchasing? Don’t you have better things to do with your free time than view half the condos in the city?

Secure a mortgage rate-hold

Once pre-approved, you will likely be guaranteed a particular mortgage rate for up to 120 days. This is can be very helpful in times when rates just happen to be on the up-swing. In the event of rates dropping, your mortgage broker will ensure you get the lowest rate possible.

Be ready to act quickly on the right property

You never know when the right property will present itself and you’ll need to act quickly. Pre-approval will put you in a position to act swiftly and from a position of strength when writing an offer.

Gain the upper hand in negotiations

If you are interested in a hot property and you find yourself pitted against a other buyers in a multiple offer situation, being pre-approved can make the difference. Imagine yourself as the seller: if you are courting several interested buyers and only one is pre-approved, which party would you sell to?

One final benefit – you may save your Realtor some aggravation (and time) if you are pre-approved before you begin viewing homes. And who wouldn’t want this?

I welcome any questions about selling or buying.
Feel free to comment here or contact me directly.

Immigrant Investor Program Ends in Canada

Immigration signAn interesting story yesterday from CBC News on the elimination of the Immigrant Investor Program. Some information on the program and how a potential investor could qualify:

The Immigrant Investor Program, launched in 1986, offered visas to business people with a net worth of at least $1.6 million who were willing to lend $800,000 to the Canadian government — for investment across Canada — for a term of five years.

View the CBC story and news segment video here.  There are opinions on both sides as to whether this will lead to changes – will the market see any immediate or longer term changes due to this development? Contrary to the market disaster predictions by a couple of interviewees in the linked video above, I am predicting that the market will not suddenly grind to a halt.

Now I’d like to know how you feel about this story. Please provide your anonymous answers below…