Taxman after condo owners

Condo investors, get your legal paperwork in shape before selling up or you could face the wrath of the taxman.

The Canada Revenue Agency (CRA) is reportedly cracking down on condo flippers, with hundreds of owners under audit and receiving penalties.
The CRA have undertaken a special ‘condo project’ to investigate sales transactions. Since last April, this project has led to almost 600 income tax audits with almost half of that number receiving penalties.
Speaking to CREW, Mark Weisleder, lawyer and real estate lecturer, says this has become a serious issue of late. “If you buy a new condo from a builder and flip it shortly after closing, firstly you may have to repay the HST rebate portion of the purchase price because you did not move in or rent it out,” he says. “This can be close to $30,000 in some cases. In addition, if you sell shortly after closing, CRA considers this business income and not a capital gain, so you will be expected to pay tax on the full amount of any profit made."
A number of factors are analysed by the CRA before applying a penalty, including the number and frequency of transaction and taxpayer’s circumstances and stated motivation to sell.
Weisleder advises condo owners to be "properly prepared" before arguing position with the CRA.
"The person must be able to demonstrate through appropriate documentation that they intended to move into the unit on closing in order to claim the HST rebate and to try and have the property classified as capital and not inventory or business income."

Will inheritance drive the housing market?

The transfer of inheritance to baby boomers over the next 20 years is expected to boost the market

A big pot of inheritance cash will help a pool of buyers use capital to alter their residence, downsize and purchase recreational property.
With over $1 trillion in inheritance expected to be pumped into the market, Sotheby’s International Realty Canada expect baby boomers to use this cash to invest in real estate.
According to their new Housing and Economic Outlook, confidence in the economy and housing market is strong, primarily thanks to low-interest rates and a buoyant U.S. market.
"The current economic climate in Canada sees metropolitan real estate benefiting from a weak dollar and recovering U.S. economy,” says Ross McCredie, President and CEO. Combined with demographic trends that predict demand for housing and a lack of inventory in most urban centres, the Canadian real estate market will see accelerated growth in the months ahead."
The report says that healthy immigration levels continue to contribute to strong urban housing markets, with the strongest impact felt in Toronto and Montréal, followed by Vancouver and Calgary.
However, they warn that Montréal’s spring housing market will be closely tied to the outcome of the provincial election on April 7, with sales momentum slowing until an electoral decision is reached.

How to make money and minimize risk with student rentals

1. Is this the right investing strategy for you?Student rentals can provide very strong cash flow. In many cases you will have up to seven students living in a house paying $400 to $500 per room. That is a good cash flow return on a property that you can buy for $300,000. The cash is great but it comes at a cost – your time. You’re dealing with young adults who are away from home for the first time, and have no idea about maintaining and running a house. Even though it’s one lease it’s multiple rent payments to collect each month.
2. Financing & Legislation
Getting your student rental property financed is one of the most challenging aspects of this strategy. Some lenders have offered options for student housing mortgages in the past but these typically have more stringent stipulations on borrowing. The down payment is also likely to be in the 25 per cent plus range. The other option is to buy a single family home and convert it to student housing at a later date. Each city also has different legislation detailing how it zones these types of dwelling. Some will regulate the number of students per house and also have rules on maintenance, fire safety standards, insurance, parking, noise etc. In cities that license student housing the cost is typically circa $500 for the first year and then it drops slightly in subsequent years.
3. Location
Where do the students want to live? Many students rely heavily on walking, biking or public transportation so the closer to the University or College, the better. But, sometimes right around the corner isn’t the most desirable area. The best place to start your research is the schools off campus housing office. My favourite strategy is to take a walk. I walk from the school and look at the housing which I get to in 15 min walk or less.
4. Get some help
Managing your own student rental takes a lot of your time. If you have to add a lot of travel time to get there from where you live then you can expect this to become a part-time job. You need to be visiting your properties at least monthly to look for issues (damage, cleanliness, water/ leaks). If you don’t want to handle all of this on your own, a local property manager who is comfortable and experienced with student rentals is going to be useful to you in manage the property. Also understand how the property manager prefers to communicate with the tenants. Do they prefer a phone call, email or text? Students tend to prefer to be able to text so having a property manager that is ok communicating that way – or has a way to receive texts – will be important.
5. Maintenance/ Cleaning
Mom isn’t around to clean up after the kids anymore. Add to that, there are lots of extra people in the house. Students need to know when garbage collection days are and where to put the garbage. The cleanliness of the house should be monitored regularly to avoid and issues with pests entering the home. Students who are adverse to cleaning may be prepared to contribute to a cleaning service once a month. If you’re renovating a house to make it suitable for students, that’s a great time to select appropriate materials.