Canada's 'housing bubble' deemed close to bursting

[wave46]

Originally Posted by misher

Costs are passed on to renters! By requiring a 30-52% tax on rentals it increases rents significantly.

My understanding is that CRA calculates tax on rental income based on the profit/loss of the unit in question.

So, they're not nailing one for X% of the gross, they're getting X% of the net. That percentage depends on what structure the rental is being rented under - claimed on personal income taxes or as a corporation. Sure, a landlord could argue that they're getting dinged at 50%+ on the rental profits if they're claiming it as personal income, but then they're well into the six-figures for income level (I'm also wondering if you're making that much profit, you should maybe have that business incorporated, but that's a different argument). I don't see why income (aka profit) from a rental is any different than income from employment.

Since property taxes are an expense and paid for (indirectly) by the tenant as part of the monthly rent, I don't see why that would factor into it either. That would be an expense of the unit, regardless if it was owned or rented.

At the end of the day, if you play your cards right, you end up with an asset paid for by someone else. It's a business, and business profits are taxed in this country.

[misher]

Originally Posted by wave46

My understanding is that CRA calculates tax on rental income based on the profit/loss of the unit in question.

So, they're not nailing one for X% of the gross, they're getting X% of the net. That percentage depends on what structure the rental is being rented under - claimed on personal income taxes or as a corporation. Sure, a landlord could argue that they're getting dinged at 50%+ on the rental profits if they're claiming it as personal income, but then they're well into the six-figures for income level (I'm also wondering if you're making that much profit, you should maybe have that business incorporated, but that's a different argument). I don't see why income (aka profit) from a rental is any different than income from employment.

Since property taxes are an expense and paid for (indirectly) by the tenant as part of the monthly rent, I don't see why that would factor into it either. That would be an expense of the unit, regardless if it was owned or rented.

At the end of the day, if you play your cards right, you end up with an asset paid for by someone else. It's a business, and business profits are taxed in this country.

It’s an investment and most investments are taxed at 50% in Canada. I don’t see why this should be different. In the end 1% rental supply is a disaster. We should be reacting like it is.

[Truenorth00]

Originally Posted by misher

It’s an investment and most investments are taxed at 50% in Canada.

Do you actually invest? Serious question. Because there's are some seriously ignorant claims being made here.

Investments are not taxed at 50% in Canada. That is the inclusion rate of capital gains. That makes the theoretical maximum capital gains tax paid to be 26%, if your income is > $150k.

You do pay income tax on gross profit. And that's no different than any other income. And again it would take a lot of rental income to end up paying a 50% effective tax rate. Like quarter million....

[wave46]

Originally Posted by misher

It’s an investment and most investments are taxed at 50% in Canada.

I don't get where you're getting the 50% number from. I've invested in government bonds/GICs and never been taxed at anything like 50%.

My understanding is that it depends how one claims it. Corporations are taxed differently, so I can't exactly say how that works there.

Using the example of a small landlord:

If one claims it on personal income taxes, it would depend on what your income is overall as to how much it would be taxed. If you reported $10,000 of profit from a triplex and no other income ($0), you'd have an effective tax rate of 0% federally (It would vary provincially). If you reported that same $10,000 income on top of $250,000 of other income (total = $260,000), you'd probably be paying 33% tax federally (and a variable % based on province) on that profit depending on jurisdiction. It could be close to 50% in such a case.

[WarrenC12]

Originally Posted by wave46

(I'm also wondering if you're making that much profit, you should maybe have that business incorporated, but that's a different argument). I don't see why income (aka profit) from a rental is any different than income from employment.

There are specific rules around property investment. You need to have several properties (can't recall exactly) to benefit from corporate tax rates. Small time landlords can't incorporate and buy a couple of condos. Something about incorporating for passive income.

[WarrenC12]

Originally Posted by misher

It’s an investment and most investments are taxed at 50% in Canada. I don’t see why this should be different. In the end 1% rental supply is a disaster. We should be reacting like it is.

The investment is the property. You are taxed as capital gains when you sell it.

This is basic, basic stuff...

[WarrenC12]

Originally Posted by Truenorth00

Do you actually invest? Serious question. Because there's are some seriously ignorant claims being made here.

I believe he was challenged to explain marginal tax rates and could not.

[wave46]

Originally Posted by WarrenC12

There are specific rules around property investment. You need to have several properties (can't recall exactly) to benefit from corporate tax rates. Small time landlords can't incorporate and buy a couple of condos. Something about incorporating for passive income.

Fair, I'm not a tax expert by far.

I'm just wondering where the claim of 50% tax on 'investment' came from.

For small time landlords, it would be considered under personal income taxes. The profit would be taxed according to the appropriate marginal rate based on overall income.

It could be close to 50% in certain cases, but you'd be clearing a couple of hundred thousand dollars in profit per year in absence of other income for that to happen.

[MolsonExport]

Originally Posted by misher

It’s an investment and most investments are taxed at 50% in Canada. I don’t see why this should be different. In the end 1% rental supply is a disaster. We should be reacting like it is.

Huh? I never paid anything close to 50% tax on any of my investments.

Where is that number from?

Misher's half-baked myspace page?

[lio45]

Originally Posted by WarrenC12

The investment is the property. You are taxed as capital gains when you sell it.

This is basic, basic stuff...

Unless your bitcoins happen to be in the form of a flipped West End SFH which you declared as your primary residence while you had it. Then no, you're not considered to have made a taxable capital gain.

[lio45]

Originally Posted by MolsonExport

Huh? I never paid anything close to 50% tax on any of my investments.

Where is that number from?

Misher's half-baked myspace page?

Actually, I believe misher's "capital gains are [only] taxed at 50%" is merely a confusing way of phrasing the very common knowledge that "In Canada, 50% of the value of any capital gains are taxable."

https://www.wealthsimple.com/en-ca/learn/capital-gains-tax-canada

[milomilo]

Originally Posted by lio45

Actually, I believe misher's "capital gains are [only] taxed at 50%" is merely a confusing way of phrasing the very common knowledge that "In Canada, 50% of the value of any capital gains are taxable."

https://www.wealthsimple.com/en-ca/learn/capital-gains-tax-canada

misher does not understand that though, and unwittingly weakened his argument. He though 50% was the rate of taxation, not the multiplier applied to a marginal rate.

[MolsonExport]

How could anyone that pays taxes not understand marginal tax rates?

Reminds me of Leo the Dog (who used to shitpost a billion times a day in the CE forum, before he was banned). He could not, would not, not now, not ever, understand marginal tax rates. But —, he had a lot to say about them.

[lio45]

Originally Posted by milomilo

misher does not understand that though, and unwittingly weakened his argument. He though 50% was the rate of taxation, not the multiplier applied to a marginal rate.

Agreed, which is why the "only" that _I_ added was in brackets, because that does help clear the misunderstanding (when it's there). And in his original statement, it wasn't.

I agree with you and MolsonEx that it looks like he heard that "capital gains are taxed at 50% [i.e. they're half-taxed instead of being fully taxed]" and then jumped to a conclusion that betrays the fact he likely never had any capital gains so far in his life.

[wave46]

Originally Posted by lio45

Actually, I believe misher's "capital gains are [only] taxed at 50%" is merely a confusing way of phrasing the very common knowledge that "In Canada, 50% of the value of any capital gains are taxable."

Unless I'm incorrect, being a landlord isn't really so much a capital gains play, right?

Unless you just want to sit on a property for awhile and let tenants pay your costs until you sell it?

I don't know.

[CityTech]

In Canada you can deduct property taxes, utilities, management costs, and condo fees from the rental income you report on your taxes. So you're not paying taxes on the entire sum of the rent.

It gets complicated in situations where the landlord lives with the tenant (ie. Renting out spare rooms in your house) as then you have to prorate those expenses based on the percentage of the home the tenant "uses", of which there are multiple ways to calculate it.

[lio45]

Originally Posted by wave46

Unless I'm incorrect, being a landlord isn't really so much a capital gains play, right?

Unless you just want to sit on a property for awhile and let tenants pay your costs until you sell it?

I don't know.

In my experience, it's the other way around - this business is totally about potential capital/equity gains, though if you can get some net cash flow from it then that's icing on the cake.

[Truenorth00]

Originally Posted by lio45

In my experience, it's the other way around - this business is totally about potential capital/equity gains, though if you can get some net cash flow from it then that's icing on the cake.

That is how it is. Not how it should be. I wonder if 100% inclusion on capital gains would curb speculation.

[WarrenC12]

Originally Posted by MolsonExport

How could anyone that pays taxes not understand marginal tax rates?

Reminds me of Leo the Dog (who used to shitpost a billion times a day in the CE forum, before he was banned). He could not, would not, not now, not ever, understand marginal tax rates. But —, he had a lot to say about them.

You know those people at work, who complain about overtime because "I get taxed even more, it's like not even worth coming in!"

Leaves me speechless.

[WarrenC12]

Originally Posted by wave46

Unless I'm incorrect, being a landlord isn't really so much a capital gains play, right?

Unless you just want to sit on a property for awhile and let tenants pay your costs until you sell it?

I don't know.

It's both, like a dividend paying stock. Buying in anticipating of future re-zoning to eventually sell is a common strategy too.

I do agree that typically being a landlord is more of a "buy and hold" strategy.