Tax Planning Strategy for First Time Home Buyers and Real Estate Investors

It’s proven – owning real estate in Canada has historically been a great investment.  The real estate market in this country, with few exceptions, has been on a steady upward trend for decades. Yes, there are always going to be blips, recessions, and other interruptions to the real estate market’s climb. Over the long haul, however, and often even over the shorter term, buying real estate is a proven money maker.  

What every real estate investor in this country should be aware of is that there are tax savings opportunities out there.  We help investors all over the GTA Toronto area with their taxes – specifically, developing a strategy for minimizing taxes on their real estate portfolio.  

Let’s go into some details on howsome ways you can lower your tax bill with your real estate investment and- with a good tax planning strategy.

First Time Home Buyers Tax Strategy

There is some easy money to be made, tax-wise, if you are a first time home buyer in Canada. If you are a first time home buyer in Canada, there is some easy money to be made tax wise.  The Canada Revenue Agency (CRA) offers a $5,000 First Time Home Buyers’ Tax Credit for home purchases that qualify – which is just about any kind of first-time residential real estate purchase. Taking advantage of this non-refundable credit can get you a rebate of up to $750 from the government, when you file your taxes.  It’s not a huge amount of money, but these savings certainly will add up it can go some way to helping out, and you should take advantage of all saving opportunities if it if eligible.

Additionally,There is also the RRSP Home Buyers’ Plan, which allows you to withdraw up to $35,000 from your Registered Retirement Savings Plan, tax free, and apply that amount towards a first time home purchase.  This amount, of course, is deferred tax; eventually you will have to pay the income tax on the $35,000, but at an older age, it will be at a lower tax rate.

Real Estate Investment Tax Planning Strategy

If you are into real estate as an investment – such as owning rental properties – the money you make on that investment is divided into two types:

• Income
• Capital Gains

Your real estate investment income – the money you make from your real estate investment, in terms of rent, is all considered income.  It is all added to your total income on your tax return, and taxed accordingly.  This income is what is left over after all expenses you incur, including items like:

• Property tax
• Insurance on the property
• Utilities
• Maintenance
• Interest on your mortgage
• Etc.

Should you choose to sell an investment property, the profit you make is known as a capital gain.  It is taxed at 50% of the total profit; for example if you made $100,000 selling a property, you can claim only $50,000 – or half of the actual gain – as income.

Developing a Good Tax Planning Strategy for Your Real Estate Holdings

You can see that there are a number of considerations for your real estate investments, come tax time.  There are numerous factors which can minimize the amount of tax you pay, such as the items we’ve listed here.  If you are a homebuyer or real estate investor here in the Toronto area, you should have a solid tax planning strategy for your real estate – one which lowers your tax burden as much as possible.  We work with real estate investors and homeowners all over the GTA Toronto and the surrounding area to develop such plans.

We would be pleased to hear from you! Contact us with any questions or comments you may have.