Archive for February, 2016

Average Metro Vancouver home price climbs 20% in January

Monday, February 22nd, 2016

Vancouver’s hot real estate market isn’t showing signs of slowing. January saw year-over-year growth of more than 20 per cent for the Metro region, according to the Canadian Real Estate Association.

That brings the average price of a home in Metro Vancouver to $775,300.

Thanks to hot markets in B.C. and Ontario, the national average home price grew a staggering 17 per cent to $470,297 – but without those two provinces, there would have been a decline of 0.3 per cent to $286,911.

“January 2016 picked up where 2015 left off, with single family homes in the GTA and Greater Vancouver in short supply amid strong demand standing in contrast to sidelined home buyers and ample supply in a number of Alberta housing markets,” said Gregory Klump, CREA’s Chief Economist in a statement.

“Tighter mortgage regulations that take effect in February may shrink the pool of prospective home buyers who qualify for mortgage financing and cause national sales activity to ease in the months ahead.”

New rules for mortgage rates took effect on Tuesday. Canadians are now required to put down a minimum of 5 per cent for the first $500,000 and 10 per cent for every dollar amount after that.

Two-storey single family homes posted the largest year-over-year gains nationally of nearly 10 per cent, followed by one-storey homes at 6.9 per cent, townhouses at 6.5 per cent and apartments at 5.2 per cent.

In stark contrast to Vancouver and Toronto’s housing markets, average home prices in Calgary saw a decline of three per cent year-over-year.

Nationally, the number of newly listed homes in January fell five per cent compared to December, and Canada’s largest housing markets such as Vancouver, Toronto, Montreal, Calgary, and Edmonton were to blame.

Source: Lauren Sundstrom, Vancity Buzz

If you’re flipping houses, expect to face tax on 100% of your profits

Wednesday, February 10th, 2016

News reports of insider trading and house flipping among some Metro Vancouver real estate agents has led B.C.’s Superintendent of Real Estate, Carolyn Rogers, to launch an investigation into the matter.

Earlier this week, NDP housing critic David Eby claimed that some B.C. real estate agents have been avoiding property transfer tax as well as capital gains taxes by using a clause in real estate contracts that allows homes to be flipped.

But when it comes to house flipping, Canadians need to be warned that profits from real estate may not necessarily be taxed as a capital gain, in which case only 50 per cent is taxable, but rather they could be taxed as business income, in which case 100 per cent of the profit is subject to tax.

The most recent published tax case on flipping real estate occurred just over a year ago when a taxpayer found herself in Tax Court fighting CRA reassessments for multiple years in which she disposed of six real estate properties and realized total profits of more than $100,000. While she reported them as 50 per cent taxable capital gains, the CRA said the transactions should be treated as business income and thus fully taxable. The average holding period of five of these properties was nine months and the taxpayer financed her properties via a one-year mortgage.

The taxpayer’s argument was that she wanted to keep the real estate “in order to generate rental income and extra income during retirement.” As it turned out, however, she reported significant rental losses in two of the tax years and she didn’t keep any of her properties for the long term. The taxpayer explained that the reason she sold the real estate within such a short time frame was that “rents were too low.” This argument wasn’t convincing enough for the CRA, which maintained that the taxpayer “has a lot of experience and could not have been unaware that the price of income properties is determined on the basis of rents.”

While the Tax Act doesn’t list the criteria to distinguish when profits are taxed as business income rather than a capital gain, the case law has developed a number of factors that are generally taken into account in making this determination. These factors include: the nature of the property sold, the length of time you owned the property, the frequency and number of real estate transactions you carry out, the improvements you made to the property (if any), the circumstances surrounding the eventual sale of the property as well as your intention at the time the property was acquired.

The judge, upon reviewing these criteria, concluded that the taxpayer acquired the properties for the purpose of reselling them at a profit “at the earliest opportunity,” rather than holding them as long-term investments with the intention “to build a diversified retirement portfolio,” and that the taxpayer’s main intention was to make short-term investment returns. As a result, the taxpayer had to pay tax on the profits as business income, not as half-taxable capital gains.

Using the criteria above, it’s likely that any profits enjoyed by those Vancouver real estate agents would be fully taxable as business income, especially since their intention was to profit from a quick flip. Although perhaps their bigger intention was to avoid getting caught in the first place.

Source: Jamie Golombek for the Financial Post. Jamie Golombek, CPA, CA, CFP, CLU, TEP is the Managing Director, Tax & Estate Planning with CIBC Wealth Advisory Services in Toronto


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