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Please note that at the moment, I have some 100 questions which have been sent to me to answer. My agreement with Jurock.com is to answer two questions a week. I tend to answer two a day. and not every question gets into the newsletter. However, when your question arrives, your name automatically goes into the newsletter which means you might get other letters without ever getting your particular question answered. I tend to answer broad based questions first as they will affect more people. This question for instance involves the Okanagan and every Vancouverite dreams about retiring to their lakefront cabin inthe Okanagan.
ingram
My question is: Canadian-specific
QUESTION: We are considering purchasing a lakefront property to be used as a rental now and in 5 years time, we will move into it as our principle residence. It could be rented year round. We have a good down payment and live in the same town. The question, not really a tax question but I realize you are also a real estate expert is this: would it be a good investment? (The property is in a heavy tourist area.)
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David Ingram replies:
A few points to consider:
One: Is your present home paid off or does it still have a mortgage on it. If you still have a mortgage on it, it is better to pay off your mortgage with the down payment you were going to use for the cottage and then borrow the money for the down payment. (see the Nov 2001 nesletter at www.centa.com for more information on making your mortgage deductible.
Two: Although losses on rental property are deductible in the ordinary sense, in this case, a plan to only rent for five years may mean that you cannot project a profit in five years. If there is not a reasonable expectation of "rental" profit during the expected rental period, any rental losses would not be deductible against current income although they could ab accrued against futre capital gains tax on the value of the building.
Three: When someone moves into a rental property, there is a deemed change of use and if the property has gone up in value, that person owes capital gains tax on the deemed profit. The tax cannot be eliminated but it can be deferred by filing an "election to defer" under Section 45(3) of the Act. Please note that there is no form. It is simply a written statement which would read something like:
I hereby elect to defer tax on the profit of $XXXX.XX on the property at: (address of property) until its sale.
You would calculate the profit on a schedule 3 and exempt the amount of profit on line 256 of your tax return.
You can find more information on rel estate rentals at: www.centa.com - click on tax guide and then click on real estate rentals - more information on real estate capital gains tax can be found under the capital gains button at the same spot.
Hope this helps:
David Ingram of the CEN-TA Group
US / Canada / Mexico tax and working Visa Specialists
US / CANADA Real Estaate Tax Specialists
108-100 Park Royal South
West Vancouver, BC, CANADA, V7T 1A2
(604) 913-9133 - Fax 913-9123 [email protected]
www.centa.com www.david-ingram.com
This question was left at Ozzie Jurock's site at:
http://www2.jurock.com/askexpert/ask.asp?aid=121&cid=63
More real estate information can be found at www.jurock.com
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