Real eState

Investor home owners looking for a tax break on losses wait for CRA’s tap on the door

Published

1 year ago

June 28, 2023

There are hundreds of thousands of rented homes that do not turn a profit for their owners, but if you’re a landlord looking to the Canadian Revenue Agency for a tax break on those losses you can expect to have to answer some tough questions on your investment.

Realtor Brian Keller has been a landlord for 23 years and, after reporting losses on his 2021 tax returns relating to his rental business he received no updates until almost a year later when a six-page questionnaire arrived in the mail.

“Provide a detailed projection of how you intend to develop your rental operation into a profitable enterprise,” the letter from CRA reads, among other things.

“I can’t believe the audacity of Revenue Canada to ask me for a business plan,” Mr. Keller said. “And they want it in 20 days. This is almost an act of intimidation.

“I understand audit and ‘Hey, show us your expenses’ … but I’ve never had a letter from the government saying ‘provide a detailed projection.’”

Mr. Keller has owned multiple residential rental properties in Ontario since 2000, starting with a couple of houses in the Barrie, Ont., area. While most years were profitable, from time to time he has reported and claimed losses on his taxes related to management of his rentals.

This is the first year he has received a letter of this kind.

“Those letters have been around for years and years, that’s nothing new,” said George E. Dube, CPA, CA, who specializes in real estate taxes at the BDO Canada accounting company. “For the most part, Revenue Canada is pretty reasonable with the rules for real estate investors. [For example,] they will allow us to deduct the costs of interest on mortgage payments.”

According to Mr. Dube, the CRA’s main goal in asking questions like those posed to Mr. Keller is to assess what kind of business the person is actually in. “Were you really in the business to generate rental income, or were you in the business of buying these [rentals] to sell them down the road? Did you buy the apple tree to pick the apple and sell the apple or did you buy it to cut it down for logs?” Mr. Dube said.

In other words, if your investment is a condominium where rents and expenses don’t cover your carrying costs but you are hoping for windfall profits when you sell the asset, then, from CRA’s perspective, you are a property speculator with a side hustle as a landlord.

Mr. Keller says his losses come from non-paying tenants and long delays at Ontario’s Landlord and Tenant Board that have resulted in more than $12,000 in unpaid rent.

In 2023, Statistics Canada reported that data from tax filings showed 1.35 million Canadian households reported income from rentals in 2020 and 76.3 per cent said their operations were profitable. That leaves about 320,000 individuals with rental income in the red.

A recent report from market research firm Urbanation and CIBC showed that even newly completed condominiums in the Toronto region were often unprofitable. The survey looked at 6,378 new condominiums completed in 2022 that were then rented on the local Multiple Listings Service. Of all the new units with a mortgage, only 48 per cent were making enough money to cover the costs of ownership.

About 39 per cent of the condos in the Toronto region are owned by investors who rent them out, according to Urbanation. The report says that while rental rates soared in 2022, so did mortgage rates, particularly affecting those who borrowed with a variable rate loan.

“The distribution of newly completed condo rentals by cash flow position shows that the highest concentration (14 per cent) of investors was losing $1,000 or more each month, with a one-third share of investors experiencing negative cash flow of $400 or more,” the report reads.

Mr. Dube said the CRA will often demand answers from landlords claiming losses who are also renting to a relative (on the suspicion that the losses stem from below-market rents.) But in most other cases, if a landlord can’t show they have any plans to make their units profitable, the losses will be denied.

“Why should the government of Canada or the taxpayers fund your lifestyle?,” said Mr. Dube. He warns that it is better to avoid filing claims that are likely to later be denied. “This starts to become a bit punitive: maybe we’re five years down the road and you’re paying back those taxes, plus some interest to Revenue Canada and other penalties.”

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Real eState

Greater Toronto home sales jump in October after Bank of Canada rate cuts: board

Published

2 days ago

November 6, 2024

Anne Joseph

TORONTO – The Toronto Regional Real Estate Board says home sales in October surged as buyers continued moving off the sidelines amid lower interest rates.

The board said 6,658 homes changed hands last month in the Greater Toronto Area, up 44.4 per cent compared with 4,611 in the same month last year. Sales were up 14 per cent from September on a seasonally adjusted basis.

The average selling price was up 1.1 per cent compared with a year earlier at $1,135,215. The composite benchmark price, meant to represent the typical home, was down 3.3 per cent year-over-year.

“While we are still early in the Bank of Canada’s rate cutting cycle, it definitely does appear that an increasing number of buyers moved off the sidelines and back into the marketplace in October,” said TRREB president Jennifer Pearce in a news release.

“The positive affordability picture brought about by lower borrowing costs and relatively flat home prices prompted this improvement in market activity.”

The Bank of Canada has slashed its key interest rate four times since June, including a half-percentage point cut on Oct. 23. The rate now stands at 3.75 per cent, down from the high of five per cent that deterred many would-be buyers from the housing market.

New listings last month totalled 15,328, up 4.3 per cent from a year earlier.

In the City of Toronto, there were 2,509 sales last month, a 37.6 per cent jump from October 2023. Throughout the rest of the GTA, home sales rose 48.9 per cent to 4,149.

The sales uptick is encouraging, said Cameron Forbes, general manager and broker for Re/Max Realtron Realty Inc., who added the figures for October were stronger than he anticipated.

“I thought they’d be up for sure, but not necessarily that much,” said Forbes.

“Obviously, the 50 basis points was certainly a great move in the right direction. I just thought it would take more to get things going.”

He said it shows confidence in the market is returning faster than expected, especially among existing homeowners looking for a new property.

“The average consumer who’s employed and may have been able to get some increases in their wages over the last little bit to make up some ground with inflation, I think they’re confident, so they’re looking in the market.

“The conditions are nice because you’ve got a little more time, you’ve got more choice, you’ve got fewer other buyers to compete against.”

All property types saw more sales in October compared with a year ago throughout the GTA.

Townhouses led the surge with 56.8 per cent more sales, followed by detached homes at 46.6 per cent and semi-detached homes at 44 per cent. There were 33.4 per cent more condos that changed hands year-over-year.

“Market conditions did tighten in October, but there is still a lot of inventory and therefore choice for homebuyers,” said TRREB chief market analyst Jason Mercer.

“This choice will keep home price growth moderate over the next few months. However, as inventory is absorbed and home construction continues to lag population growth, selling price growth will accelerate, likely as we move through the spring of 2025.”

This report by The Canadian Press was first published Nov. 6, 2024.

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Real eState

Homelessness: Tiny home village to open next week in Halifax suburb

Published

2 weeks ago

October 24, 2024

Anne Joseph

HALIFAX – A village of tiny homes is set to open next month in a Halifax suburb, the latest project by the provincial government to address homelessness.

Located in Lower Sackville, N.S., the tiny home community will house up to 34 people when the first 26 units open Nov. 4.

Another 35 people are scheduled to move in when construction on another 29 units should be complete in December, under a partnership between the province, the Halifax Regional Municipality, United Way Halifax, The Shaw Group and Dexter Construction.

The province invested $9.4 million to build the village and will contribute $935,000 annually for operating costs.

Residents have been chosen from a list of people experiencing homelessness maintained by the Affordable Housing Association of Nova Scotia.

They will pay rent that is tied to their income for a unit that is fully furnished with a private bathroom, shower and a kitchen equipped with a cooktop, small fridge and microwave.

The Atlantic Community Shelters Society will also provide support to residents, ranging from counselling and mental health supports to employment and educational services.

This report by The Canadian Press was first published Oct. 24, 2024.

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Real eState

Here are some facts about British Columbia’s housing market

Published

3 weeks ago

October 17, 2024

Anne Joseph

Housing affordability is a key issue in the provincial election campaign in British Columbia, particularly in major centres.

Here are some statistics about housing in B.C. from the Canada Mortgage and Housing Corporation’s 2024 Rental Market Report, issued in January, and the B.C. Real Estate Association’s August 2024 report.

Average residential home price in B.C.: $938,500

Average price in greater Vancouver (2024 year to date): $1,304,438

Average price in greater Victoria (2024 year to date): $979,103

Average price in the Okanagan (2024 year to date): $748,015

Average two-bedroom purpose-built rental in Vancouver: $2,181

Average two-bedroom purpose-built rental in Victoria: $1,839

Average two-bedroom purpose-built rental in Canada: $1,359

Rental vacancy rate in Vancouver: 0.9 per cent

How much more do new renters in Vancouver pay compared with renters who have occupied their home for at least a year: 27 per cent

This report by The Canadian Press was first published Oct. 17, 2024.

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