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QUESTION:
David
I am an avid listener to your show over the internet as well as subscribing
to your really interesting E mail hints.
We are a family in England who have the opportunity to move to Canada under
the skilled worker classification. We would receive 73 points and could
continue working in my field but would very much welcome a change if we
moved to Canada. I am coming to the end of a 30 contract at work (British
Police Force) and will get an annual superanuated pension of approximately
$50,000 cads per year. We intend to apply to come over to Canada as landed
immigrants in two months time. My wife will have no other income apart from
our savings and equity.
Ideally we would like to purchase a thriving bed and breakfast in the
greater Vancouver area when we arrive and run it as a business. This would
provide us somewhere to live as well as having a business.
>From listening to you, I understand that we can claim all interest against
tax if we remortgage a house and use that money to purchase a business. In
our scenario that would seem to be difficult as we would be actually living
in the B& B as our primary residence.
In the UK we own our house which is valued at $750,000 cads. My question is
"If we remortgage that property with an English Bank and release say
$600,000 cads - could we claim that English Interest against Canadian tax
when we arrive as landed immigrants?"
I have another question.."Having remorgaged our English House we would then
put tenants in to pay off the mortgage whilst we are in Canada...I would
expect to get at least $2,500 cads per month for our house, which would pay
off the loan for $600,000 cads - How would that sit from a tax point of
view?"
The third question might be obvious to some of your astute property investor
types but believe me, we are very green at this type of thing. As the B& B
would be fully paid for in cash, could we then borrow against that property
and use the money to buy a couple of properties which we would then rent
out. Say we remortgaged the $600,000 B&B and bought two new condos somewhere
for $200,000 cads each and rented them out - what are the tax or practical
implications of all that?
As you seem to be the cleverest chap on the internet and we are otherwise
completely dumbfounded by the immense Canadian tax system I would really
appreciate your views. Any other practical advice, hints, wrinkles would
also be really be appreciated....No doubt you would be saying that we need
you to sort out the actual tax returns - take that as read (Could we claim
that expenditure against tax as a business expense against the B&B?)
Best Regards
XXXXXXXXXX
Hastings
United Kingdom
============================================
david ingram replies:
The money borrowed on the English house would be used to buy the Bed and Breakfast.
A proportional part of the interest could be claimed against your Bed and Breakfast income. Under Canadian law, it would not be deductible against the rental income from the house in Hastings. Assuming the house in England is in joint tenancy, you might try a gunfighter technique and have one of you borrow the money to buy half the house in Hastings from the other.
I would suggest that you buy the house from your wife. Then your wife has enough money to make a good down payment on a house in Canada. She could do something silly like buy a half duplex for cash and use the other side of the Duplex for your Bed and Breakfast and borrow all the money to buy the business side which would make it all deductible.
Then when the B & B starts making good money, it would be taxable to your wife at a lower rate instead of being added on top of your pension income.
That is just a partial solution. Making interest deductible in Canada needs a proper paper trail. You might decide that a Duplex is out because you want a big old period house. If so, by using the rent form England and the B & B income, you can easily pay down the non-deductible mortgage and replace it with mortgages that have been used to fund the B & B and the rental.
Goto www.centa.com and read the November 2001 newsletter a dozen times to get the idea straight.
I have had emails from about thirty countries now about people listening to us on the internet. Thanks for listening and thanks for the kind comments.
david ingram
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