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What are the tax implications if I buy a rental property?

by Guest795  |  6 years, 7 month(s) ago

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What are the tax implications if I buy a rental property?

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  1. Guest796

     (1) The tax rate on the initial $37,178 earned though rentals is taxable at a rate of 23%. Canada has income tax treaties with several countries including the UK so this may alter the taxable income rate. 
    (2) GST (Good's and Services Tax) applies to holiday rentals in Canada. GST is not payable on long term accommodation. 
    (3) When you buy a property in Canada, the 5% GST is payable, plus any provincial tax which varies from province to province (Alberta is zero). An exemption is possible if you do not use your property for more than 10% of the year (a maximum of 36 days a year, or 9 days in the case of fractional ownership). In order to benefit from this exemption, you must register for GST (or/and QST in the case of Quebec) before the purchase completes. 
    (4) Taxation pertaining to rental income in Canada favour the owner. There are so many deductions possible, that it is crucial that you keep all receipts for use at the end of the fiscal year. Examples of possible deductions are: mortgage interest, property taxes, insurance, maintenance costs, heat, electricity, water costs, management fees, some travel expenses, furniture, repairs, etc. Mortgage interest payments are also deductible in full. This works to your advantage in a significant way, so the copy of the mortgage agreement as well and a repayment record should be supplied to your accountant. 
    (5) On sale of your property, you will have to pay a Capital Gains tax on the difference between what you paid for the property and the sale price. If there was actually depreciation, you will be able to deduct the depreciated difference to any income. The actual amount of Capital Gains tax payable is 50% taxed on half the amount of appreciation. This has the effect that you will pay no more than 25% of the gain you receive. 

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