Close friend and chartered accountant at MNP, Jordan Weinberg joined Cailey Heaps on Friday, January 29th, 2021 to provide his professional insight into real estate taxation and achieving your own property investment goals.
Working at one of the largest accounting firms in Canada with a focus on real estate, Jordan has key insight on what it takes to be successful in real estate investments. We’ve outlined some of his key takeaways below:
The webinar kicked off with an introduction comparing taxation on a “flip” versus a rental by comparing the difference in earning income vs capital gain. Jordan outlined the importance of intention – if the intention is to earn income predominantly from capital appreciation of property such as flipping a house, it will be deemed inventory. Comparatively, property rented out lends to capital gain on sale, as the sale will be on account of capital property.
A useful rule of thumb; if your intention is capital gain and the property is rented (particularly in the long term) you know it will be a capital gain on the sale. Additionally, if you are living in a property that is your principal residence, then there is no tax paid on the sale of a principal residence.
HST on Flips and Renovations
Jordan outlines the importance of understanding the rules and regulations regarding HST to reside on the safe side of tax edict. If you substantially renovate a property, you must charge HST on sale- unless it becomes your principal residence and you’re not deemed a builder. Substantial renovation can be identified as anything greater than 90% (not including structural items).
HST on Rentals
Short-term rentals (under 30 days) are required to charge and remit HST. We discover the importance of being prudent with a small supplier threshold. Alternatively, with Long Term Rentals (30+ days), residential rent is HST exempt.
Other HST Assignments
Jordan proceeds to explain the subject of general HST on the profit portion. He explains that when a residence has never been lived in, it is considered new construction and therefore there is HST on the profit portion. However, it’s important to note that the CRA could come after you for HST on the entire sale price- not just profit.
Changing Times “The CRA will never find out”
Jordan elicits the observational power of the CRA. Certain electronic bank transactions are reported directly to the CRA. The CRA can then use data to find correlations for a risk-based approach, and CRA may be in electronic databases. The CRA can also request certain records from builders, renters, suppliers, purchasers etc., who transacted with you. In essence, the CRA goes where the money is.