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Thinking about resort property ownership

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By Freddy Marks

Recreational property ownership is all about having a place to unwind and relax. With so many activity options, an investment in a resort property will give growing families years of enjoyment, and the option to rent out the property when not in use to help pay for the expense.

A resort property can provide an excellent location for year-round enjoyment with access to urban amenities, as well as summer and winter outdoor activities.

B.C. has many resort communities that have grown up around ski hills, large lakes and hot springs.

Ski resorts have transformed into all-season playgrounds that bustle with spring festivals, summer markets and live music. Summer at the hill gives you outdoor adventure choices such as mountain biking, alpine hiking and golfing.

There are several regions in B.C. that offer ski hill property ownership.

Starting in the Lower Mainland, the most sought-after ski weekend get-away is in Whistler Blackcomb.

Within a four-hour drive of Vancouver is Sun Peaks Resort near Kamloops: the second-largest resort in B.C. offering winter powder play, as well as an outdoor public pool and golf course.

The Okanagan region has Silver Star Mountain Resort near Vernon, and Big White Resort near Kelowna.

Situated in the East Kootenay Rockies, about four hours from Calgary, is Panorama Mountain Resort, and the Bavarian-theme resort town of Kimberly in the Purcell Mountains about 20 minutes from the Cranbrook International Airport.

(Picking a mountain region that can be reached by more than one mode of transporation adds flexibility, making travel during peak holiday times easier.)

There’s not much difference between a ski resort chalet and a typical vacation home except for location and the steep slope of the roof.

With a resort chalet, as with typical vacation homes, you are responsible for all upkeep, including snow removal, yard work and trash removal, all of which add to the expenses of your mortgage and property taxes.

A sometimes more attractive option is the ski resort condominium, which will be part of a strata association.

Condo property owners are charged strata fees to cover external upkeep and you don’t have to cut grass, worry about snow plowing or take trash to a refuse site. Condos, which are usually multi-floor townhouses or one-floor apartments come with shared amenities, such as a pool, games rooms, or a gym.

The downside to a condo can be the privacy factor; if you need complete privacy to relax and find zen, a detached dwelling will best suit your needs.

In contrast, purchasing a lot in a lakeside RV resort offers waterfront with all the play and less than half to pay. Your motorhome, trailer or camper becomes a hassle-free getaway, and you don’t have the expense, responsibility or maintenance of a vacation home. You leave your RV on your own lot, set up and hooked up to power, water and sewer services, while the upkeep of the rest of the property is taken care of by the resort.

This type of recreational property ownership has gained a lot of fellowship over the years and many have become micro-communities.

The Okanagan, Shuswap and Fraser Valley each have numerous resort properties to consider.

Make sure you fully understand what type of ownership is being offered in the sales contract: RV lot resorts each have their own ownership structure and rules.

Similarly, the draw to a vacation by the water has many seeking landholdings at the handful of amazing B.C. hot springs. Halcyon Hot Springs, Nakusp Hot Springs and Ainsworth Hot Springs in the Kootenay Region make up a chain of mother nature’s most sensational soaking experiences, and they are located along side hundreds of miles of lake view for both Arrow and Kootenay Lakes.

There are even a few exceptional waterfront landholdings that have their own water rights to the Halcyon Hot Springs.

Alternatively, the best of both worlds is located only a few hours east of Vancouver in the Fraser Valley. Revered, Harrison Hot Springs has grown to become a sizeable resort community and sits on ultra scenic Harrison Lake, known for its water sports and mountain backdrop.

If you live in the Lower Mainland, Harrison Hot Springs is the perfect resort community to own recreational property in, with Harrison Lake, access to the hot springs and outdoor recreation in the surrounding forested mountains.

B.C. has many types of resort property ownership, and as in any real estate transaction you are responsible for due diligence in knowing exactly what is being offered for sale.

I urge you to research everything you can about the resort where you are considering purchasing recreational property, and inquire with the people who are already residents. Ask them what they love and dislike about their resort community and the surrounding area.

As always use a trusted and knowledgeable realtor to help you with your search, vetting and purchase.

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Real Estate

Home Sales Climbed Higher In July

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Canadian home sale rose in July in broad gains as markets start to recover from the stress test tightening last year, though economists say global concerns raise some uncertainties for the future.

The Canadian Real Estate Association reported last week that home sales rose 12.6 per cent in July from a year earlier, and were up 3.5 per cent seasonally adjusted from June.

“Sales are starting to rebound in places where they dropped when the mortgage stress test took effect at the beginning of 2018, but activity there remains well below levels recorded prior to its introduction,” said CREA president Jason Stephen in the report.

“Sales activity is strong in New Brunswick where I do business, but it’s a very different story in B.C., Alberta and Saskatchewan. All real estate is local. Nobody knows that better than a professional [realtor], who is your best source for information and guidance when negotiating the sale or purchase of a home,” said Stephen.

The increase came as sales were up in markets like Moncton, B.C.’s Lower Mainland, Calgary, Edmonton, Greater Toronto Area, Hamilton−Burlington, Ottawa and Montreal. Sales were down in Regina, Saskatoon, and Windsor−Essex.

The broad rise in sales put them at their best level since the stress tests kicked on at the start of last year, said BMO chief economist Douglas Porter in a note.

“After a challenging 18 months, the Canadian housing market is showing widespread signs of, not just stabilizing, but firming again.”

The federal government updated mortgage qualification rules at the start of last year to require more would−be borrowers to prove they could manage if interest rates rose.

The national sales−to−new listings ratio tightened to 59.8 per cent last month from 57.6 per cent recorded in June to the upper end of what’s considered a balanced market, he said.

The rise in sales, which came as the number of newly listed homes edged back by 0.4 per cent in July, put some pressure on prices, said Porter.

“With sales regaining some momentum broadly, and the market tightening in many regions, it’s little surprise that prices are starting to turn the corner again.”

The national average price of a home sold in July was just under $499,000, up 3.9 per cent from the same month last year and a seasonally adjusted 2.6 per cent from June.

Double−digit price gains in several Ontario communities including Ottawa and Kitchener−Waterloo helped drive up the overall average, while cities in Western Canada generally saw prices drop.

Porter said global uncertainties are already driving borrowing costs lower, which could further boost the Canadian market, but if economic declines prove serious then interest rates will be secondary.

“The downside is that if “global uncertainties” morph into something much more serious for the domestic economy, interest rates will be playing a second fiddle.”

TD senior economist James Marple said the housing market looked robust for the month, supported by strong population growth, solid job growth and lower mortgage rates.

“This can only be described as a solid month for the Canadian housing market…with most markets in balanced territory or better, the immediate downside risk to home prices have diminished considerably.”

He said there is some uncertainty as to where rates will go, since domestically the economy looks strong while there are considerable international challenges as global economic growth looks even softer than previously thought.

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Why you need to be on top of real estate Tax rules

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Advisors have been urged to brush up on their real estate tax knowledge, with the CRA throwing more auditors at the issue.

Mistakes in tax returns appear to have left millions of dollars out there and, with many transactions of this nature of high value, the agency is redoubling its efforts to recoup money.

Mariska Loeppky, director, tax and estate planning for IG Wealth Management, believes investors are often making innocent errors because of the relatively new adminstrative change to reporting your principal residence exemption disposition.

From the 2016 tax year, residents are required to report basic information, like date of acquisition, proceeds of disposition and description of the property, on income tax and benefit returns, when they sell their principal residence residence.

An example, explained Loeppky, could be when someone owns land and a few years later builds a house on it. She added: “You can’t claim a principal residence exemption for that property while it’s just land until you live in that home.

“So, when you go and report that disposition, you probably think, ‘that’s always been my house or I have always lived in that house’. But really, you owned that property for a few years before you could claim it as your principal residence.

“People don’t understand how that calculation works, and how that exemption works. Another example is that people are flipping properties and they’ve taken the position that they can claim their principal residence exemption.

“But the CRA says, ‘hey, you’ve actually sold quite a few homes in the last little while so you are in the business of flipping homes’. They would treat that as business income, not a capital gain.”

Some advisors, she added, have been caught out by clients gifting properties at less than the fair market value. You are, in fact, deemed to disposition the property at fair market value rather than gift it to avoid tax or probate fees upon death. Renting is another example and represents a change of use for the property, which should be reported to the CRA.

Loeppky said: “Advisors must make sure they know what the reporting obligations are. If you are in doubt, hire a professional accountant to help you with your tax return. Most of the tax preparers that I see packages from, they’re asking the questions: did you sell your home? Did you start renting it out?

“These could have tax implications. Just knowing that, while the principal residence exemption is there to protect you, you have to report it and there are significant penalties for not doing so. If you forget to disclose that you sold your home on your tax return, it’s a penalty of $100 a month, up to a maximum of $8,000.

“Even though you’ve got a tax free transaction, or what you think is a tax free transaction, not reporting it in theory could land you with an $8,000 penalty, which is pretty steep.”

There is also the issue of foreign property, with Canadians required to report their worldwide income, which includes gains on these sales. The CRA will likely find out where the proceeds are – and they need to be disclosed – whether they are sitting in a foreign bank account or a Canadian one.

She said: “There’s lots of ways for the CRA to find out that you sold something, so it’s a case of knowing that a transaction has to be reported. Renting out a foreign property also has to be reported on your Canadian return – and then knowing that you can claim a foreign tax credit to offset the double tax that you paid to the other country. These are things you need to navigate.”

Buying property from a non-resident raises the requirement of holding 25% of the proceeds unless there is documentation from the seller that this has been waived. If it’s not, it’s up to the non-resident to file a tax return to get some of that back.

Loeppky added: “Advisors should be aware of the rules when it comes to real estate transactions and knowing the principal residence exemption, how it works, and when you can claim it. It’s also about helping the client realize that you need to take advantage of that principal residence exemption to the best of their ability.

“Normally, they’d want to shelter that gain so helping clients make that determination is really important when they have a choice between two different properties that they could claim as a principal residence exemption.”

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Appeal court withdraws real estate decision

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Justice Richard Lococo’s decision in the Superior Court case, Hilson v. 1336365 Alberta Ltd., 2018 ONSC 1836, was appealed. But, a May 27 judgment on the appeal was released “in error,” the court now says.

After considering written submissions, Associate Chief Justice Alexandra Hoy and Justices Kathryn Feldman and Grant Huscroft wrote on Aug. 13 that a previously released May 27 decision” is not a judgment of the court” and “is of no force or effect.”

“One of the members of the panel that heard the appeal, Justice [Grant] Huscroft, was not provided with either the draft judgment for review or the final judgment for signature. The judgment was signed, in error, by another justice who was not a member of the panel that heard the appeal,” the judges wrote in Hilson v. 1336365 Alberta Ltd., 2019 ONCA 653, released Aug. 13.

Hoy, Feldman and Huscroft rejected a proposal that Huscroft review the May 27 judgment “and either assent to or dissent from a judgment that he had no role in making.”

“The panel of judges that rendered judgment was not the same panel that heard the appeal…. This cannot now be corrected,” they wrote. “The decision-making process has been compromised and this panel cannot render a judgment.”

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