I was just chatting with my accountant to find the best strategy for structuring my rentals before they come online, and she said in Canada rental income is taxed at 50% but she didn’t offer anyway to shelter it. So my question is, are you all 50/50 partners with the government while you assume all the risk or is there a better way to position your self to lessen this tax load?

After expenses, depreciation, and amortization of cap ex you will have a net loss for the first several years of owning if you are using debt.

You only pay tax on net income which is roughly 40% on income.

50% of the capital gain is taxed, maybe that is what she was talking about.

You only pay taxes if you are making money but you pay your accountant no matter what (and more for complex structures) so focus on a lean structure, simple structure starting off and build out from there only as absolutely necessary.

Well how do they expect us to grow the country if they keep wicking away the profits faster than we can re-invest them? We need some better forms of incentive in Canada to encourage business rather then discourage it.

As Matt said you won’t pay taxes until you are very low loan to value say sub 50% as you depreciate the building ( excl land ) by up to 4% a year. This is called CCA in accounting or ta speak aka capital cost allowance.

So if house is worth $500,000 and of that land is $200,000 then you can deduct up to $12,000 ( ie 4% of $300,000) per year from your net taxable income

Net income is gross income minus operating expenses minus interest on your mortgage

You will have to pay back this CCA tax savings when you sell. Kinda like an RRSP. Save taxes now but pay later.

Taxes on any capital gains are taken only on half the gain. The other half is tax free. That is where you get wealthy !!

Or by not selling, increasing the mortgage based on higher rents and values and then buying more assets. Thus, refi or sell is the big agonizing question after a while ! More on this “Agony and the Ecstasy - Sell or Refinance “ here http://blog.reincanada.com/sell-or-refinance-the-agony-and-the-ecstasy

MattReno said:

Well how do they expect us to grow the country if they keep wicking away the profits faster than we can re-invest them? We need some better forms of incentive in Canada to encourage business rather then discourage it.

Click to expand...

Don’t over pay for property.

@ Thomas

Thanks for the post and the link to the blog. So much of financial education that spending 1-2 hours every day for the last 7-10 days seems less.
Thanks again
Jay