I just heard from a man that owns a condo in one of the buildings that I had previously owned a unit in, just keeping me up to date on his affairs (a great deal of what I do falls into the area of Free advise).
I was actually forced to sell my unit due to the poor construction quality of the building. He had tried selling his as well but he had bought late and paid what I felt to be an excessive amount for their unit and simply could not dump his unit without a loss, so he decided to become a landlord and rent it out.
When I received his email message updating me, I responded to him saying that I hoped that he had gotten the unit appraised before converting is “Principal Residence” (the home in which he and his lived) into a “Rental Income Property”.
It is always amusing to me to say the least, that people seek my advise only after they’ve done what they are thinking of doing (you’d be shocked at how many people write me only after they’ve bought a condo unit instead of before).
Well, the “Reader’s Digest” version of the story is that they hadn’t gotten it rented out and now, going into a second rental term, they had written me just to keep me informed on things (I guess).
He was surprised at my instruction to him about having gotten an appraisal. “What for” was his reply. They were only going to rent if for a couple years and then possibly move back into it, so what would they want with an appraisal?
Well, it really isn’t them that wants the appraisal. You see Canada Revenue Agency expect Capital Gains Tax to be paid on any appreciation in value of the the unit from when they gave the unit up as a principal residence and when they return to enjoy it again as a principal residence.
He felt that paying taxes on the rental income was enough and seemed dismayed when I informed him about the Capital Gains implications of his actions.
I’m not a lawyer do I don’t give legal advise and I’m not an accountant so I don’t give accounting advise either. I do share the facts with all my clients and any client of mine that is contemplating doing this is well informed ahead of doing anything (by me) of what stands before them.
The proper course of events when considering doing something like this is to have the property appraised when vacating and then having it appraised again when you are about to move back into your property.
The difference in the appraisals is considered a Capital Gain by Revenue Canada. You must identify the value increase and pay the tax man what is his.
It remains a constant mystery to me how so many people jump into the investment in condos game with absolutely no awareness of what they are doing. Ignorance is actually the key driving factor in CondoLand and if most investors were better informed there would not be so much turmoil and disappointment when it comes to owning condos (over and above the consistent disappointment with the Condo Act, Tarion and pretty much every aspect underpinning the Condo Game.
Usually in games and sports we first learn the rules but in Condo Land, it’s more of a “on the fly” education.
Unfortunately “on the fly” education is costly and in this instance that cost revolves around the Canada Revenue Agency who expect their money right up front.
This is why so many people have remained as my clients over the four decades that I’ve been involved in the Condo Game. Full disclosure is a foundation point of my service.
If you are thinking about doing anything in the Condo Game, the first and most astute move that you can make is to Register with me. My services are FREE and my advise is invaluable.
It’s not that I’m some kind of rocket science and you probably wouldn’t want to come to me for advise in any other area but when it comes to condos I am “the King cobra” as I’ve been labelled.