Tax Saving Tips for Real Estate Investors in Canada

Tax Saving Tips for Real Estate are as important as Real Estate investments.There are two things certain in life, death and taxes. Majority of Canadians do not understand the complexity of taxation.” A major portion of your earning goes toward your taxes which can be as big as 46-80% of your total earnings. Knowing a little about taxes can save you huge amount of money” says Navtaj Chandhoke, founder of Professional Real Estate Investors Group (PREIG) Canada.

Here is brief description of top ten tax saving tips. These are simple guidelines and are not rendered as professional advice. Your Chartered accountant can assist you professionally.

In its T4036 Guide to Rental Income, the Canada Revenue Agency provides a number of questions you can ask yourself to help determine whether an expense is current or capital in nature. For example, you replace wooden steps with concrete steps, it’s a capital expense. But if you simply repair the wooden steps, the expense is currently deductible.

Dont exaggerate your home office expenses. This is a red flag for the CRA. There are always exceptions, but a good rule of thumb is a maximum of 25 per cent as the business share of heat, hydro, property taxes and so on.

Keep a careful log of car expenses. This is another red flag for CRA.

If you run into trouble or make a mistake, call the CRA. Most times they will be very helpful, especially if you call before the crunch.

Whatever you do, dont ignore communications from the CRA, respond promptly and make notes of your conversation right on the letter for future reference.

Unless you are incorporated you are required to complete a Statement of Business and Professional Activities (T2125) at the same time as you file your personal taxes.

Dont wait until the last minute. Its impossible to get yourself properly organized under eleventh-hour time pressure and its difficult to make good decisions to minimize your taxes.

Make an estimate of your expected tax bill. If your revenue is going to be high, you might consider making that machinery or computer purchase before years end. Youll defray some of the expense through capital cost depreciation.

You should set aside 30 to 40 per cent of your gross income to cover income tax and CPP. Even if you are the only employee of your business, you are responsible for paying the employee and the employer CPP contributions.

Keep proper records differentiating business from personal If you cant prove it, the CRA will likely assume the expense is personal. Use the categories provided by CRA on the T2125.

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Principal Residence Canada Capital Gains

Principal residence Canada capital gains, How does the Canada Revenue Agency view it. A very common question asked by Canadian Real Estate investors about their principal residence. How their property does qualifies as principal residence and what is Canada Revenue Agency’s parameter.

Principal Residence Canada Capital Gains

Principal Residence Canada Capital GainsPrincipal residence Canada capital gains depends upon  always about the size, usage and ownership. It is important for one to know because this is only tax loophole available for Canadians.

A property qualifies as your principal residence In Canada for any year if it meets all of the following four conditions:

1. It is a housing unit, a leasehold interest in a housing unit, or a share of the capital stock of a co operative housing corporation you acquire only to get the right to inhabit a housing unit owned by that corporation.

2. You own the property alone or jointly with another person.

3. You, your current or former spouse or common-law partner, or any of your children lived in it at some time during the year.

4. You designate the property as your principal residence.

The land on which your home is located can be part of your principal residence. Usually, the amount of land that you can consider as part of your principal residence is limited to 1/2 hectare (5,000 square meters), which converts to about 1.24 acres (53,819 square feet).
Since these are requirements are based by Canada Revenue Agency, they intend to apply across Canada. If you have further questions, you should speak directly to Canada Revenue agency or your accountant

However, if you can show that you need more land to use and enjoy your home, you can consider more than this amount as part of your principal residence. For example, this may happen if the minimum lot size imposed by a municipality at the time you bought the property is larger than 1/2 hectare.

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The above information is provided as a guideline and is not intended to give a professional legal advice. Please consult a real estate lawyer for their opinion on your particular case.

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