What are the first things you should ask yourself before buying rental property? First of all, will you live there or not? From a fiscal point of view, if you are renting out the entire property, you could deduct all of the day-to-day expenses related to the building from your income. But if you’re an owner-occupant, only expenses related to the rental units will be deductible. On the other hand, when you go to sell, the portion of the building occupied by the owner is exempt from capital gains tax. If it is completely rented out, all of your capital gains will be taxable.
In addition, when you have a specific property in mind, you need to consult the assessment roll to ensure that the number of units on the realtor’s listing is correct. If a livable basement is considered to be a dwelling by the city, this counts as one more unit. If this is the case, you might have to make a bigger downpayment.
Speaking of which, how much of a downpayment do you need for this type of purchase?
If you’re renting out all of the units, you need to make a minimum downpayment of 20% of the building’s purchase price.
If you’re going to be an owner-occupant, you could lower the downpayment to 5% of a duplex’s purchase price with mortgage loan insurance. For a triplex or quadruplex, you’ll need to put down a minimum of 10%.
According to Jonathan Haziza, a product manager for mortgage solutions at National Bank, the scale of the costs linked to buying a property tend to be underestimated by first-time buyers. So without further ado, here are some expenses to keep in mind for a realistic portrait of what lies ahead.
Your financial institution may ask for an evaluation of the property’s market worth. This happens when the cost is steep or the property contains various risk factors. Requesting an appraisal is a means of protection: either to ensure that payments won’t be above your means, or to verify that the property is truly worth what you’re about to pay. You’ll therefore need to hire an appraiser to produce the necessary documents.
Inspection fee Hiring a building inspector to check for hidden defects in pre-existing houses is crucial. This will help you avoid bad surprises that could cost you a lot; you’ll have peace of mind knowing that everything is as it should be. Continue reading →
After home sales failed to meet expectations in 2014, many analysts gave a cautious forecast of only a 2% increase in sales for 2015. However, despite several economic ups and downs, the real estate sector performed surprisingly well across Quebec this past year.
Key interest rate, depreciation of the loonie and jobs
To everyone’s surprise, at the start of the year, the Bank of Canada decided to reduce its key interest rate to 0.75%, which led to lower mortgage interest rates. The impact of this change resulted in shorter terms and generous rate discounts. What’s more, in July 2015, the Bank of Canada further reduced its key interest rate to 0.50%. While this second decrease had a less dramatic effect on mortgage rates than the first, it did encourage Canadian banks to reduce their preferred rates, which gave a boost to the Canadian economy.
Among other factors influencing the housing market, the job market proved to be particularly resistant to economic fluctuations, with over 80,000 jobs being created in Canada over the course of the year.
Higher sales than expected with slight price increases
While many anticipated growth in home sales of just 2% in 2015, as mentioned above, by mid-2015, that figure had already reached 5%. The Québec Federation of Real Estate Boards (QFREB) even forecast a rate of 6% or 7% by the end of the year, with some 75,000 properties sold, and the Canadian Mortgage and Housing Corporation (CMHC) agreed. Continue reading →
The Registered Retirement Savings Plan (RRSP) and the Tax-Free Savings Account (TFSA) are two savings products that each have their own objectives and advantages. Which one is best for you?
When should you choose an RRSP?
The RRSP is most often used to build savings, tax free, for use at retirement. Tax on earnings is deferred until the funds are withdrawn from the plan, generally at retirement age. This is an excellent way to defer a portion of your salary in order to make up for any shortfall in your income after you retire. Also, RRSP contributions can be deducted from your taxable income, which may lead to tax refunds.
RRSPs are especially beneficial if the amount withdrawn is taxed at a lower rate than the rate in effect when the amount was initially deposited. This is the case for most people because their income at retirement is usually lower than when they were working. RRSPs also open the door to other related programs, such as the Home Buyer’s Plan (HBP).
When should you choose a TFSA?
The TFSA will allow you to invest up to $5,500 in 2015 for various projects, without being taxed on the investment income earned. As with an RRSP, when funds are withdrawn from the account, the capital and income are not taxed. The difference, however, is that TFSA contributions are not deductible from taxable income.
TFSAs can be advantageous for a number of short-term or medium-term projects, and are ideal for setting aside an emergency fund. The TFSA can also be beneficial in the long term for:
people who expect their tax rate to be higher when they withdraw funds from an RRSP than when they contribute to an RRSP
people who have already maximized their RRSP contributions and still have funds to invest outside a registered plan
retirees age 71 or older who can no longer contribute to an RRSP
low-income earners, such as students (18 or older) and people who have access to Guaranteed Income Supplements (GIS), who manage to save some money
Both RRSPs and TFSAs allow investors to choose from a wide range of financial products. The following table will give you a quick overview of their distinguishing features.
(up to 18% of income earned)
(no matter the income earned)(indexed according to the CPI and rounded to the nearest $500)
Unused contribution room carried forward
Creation of new contribution room if withdrawal
Yes, effective the following year
Tax on income
Tax on withdrawals
The year of the 71st birthday of the contributor
Although you cannot contribute to your spouse’s TFSA, funds can be transferred to him/her so he/she can contribute to his/her account, and the income generated will not be subject to the income attribution rules.2
Use as collateral
Mandatory minimum withdrawal
Yes (once the RRSP has been transformed into a RRIF*)
*RRIF: Registered Retirement Income Fund
Get in touch with your dedicated Business Development Manager, who will be pleased to refer you to an expert for advice adapted to your situation and your projects.
For RRSPs and TFSAs, certain penalties may apply if you exceed the eligible contribution limit.
Attribution rules are a tax mechanism whereby an individual who transfers assets to a third party must include the income earned from these assets in his or her own income.
The information in this article is not exhaustive and is for information purposes only. For financial advice or any question concerning your investment options, please consult your National Bank advisor or a professional (accountant, tax specialist, lawyer, etc.).
With the last days of summer drawing near, you are probably on the lookout for a new project. You are wondering what you could do or work on and suddenly it comes to you: your home. Whether you plan to buy, sell or renovate your home, National Bank has a range of financing products to help you out.
If you are looking for peace of mind, you may want to consider a fixed-rate mortgage with set monthly payments for the entire term of the loan. Not sure what is best for you? Try a madeto-measure mortgage, where part of your loan is financed at a fixed rate and part at a variable rate. Continue reading →
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