Page 14 - PreConstruction Investment Guide

WHEN IS MY HST OWED ON A SALE?
When buying pre-construction or any residential property in Toronto, HST is included in the purchase price. If you’re buying as an investor and are going to rent out the property for a minimum of one year, you’re entitled to an HST rebate for the amount of the HST charged. Upon registration, when you close and pay all of your registration fees, you will also be mandated to pay HST in an approximate amount of $24,000. You will get a full refund 4 to 6 weeks after registration provided you have a one year lease. Your lawyer will be able to assist you with rebate forms. If you do not rent out your property for the minimum one year you are not eligible for the HST rebate.
WHEN DO I PAY MY CLOSING FEES?
Your closing fees are due on the registration date of the building. That includes your Land Transfer Tax, development charges, legal fees and HST, if owing.
CAN I FLIP MY UNIT? IS IT A GOOD IDEA?
Most times we negotiate an assignment amendment in the Agreement of Purchase and Sale which allows the purchaser to assign or “ ip” the property or contract to another purchaser prior to the building’s completion. 99% of the time we believe this is not a good idea. Here’s why:
1. Amenities and common spaces are usually the last areas to be completed. At the occupancy stage, these spaces often don’t look their best.
2. At the time of occupancy, there are usually more people trying to assign their properties which means more competition and more choice for buyers. With more choice for buyers, you are less likely to get top dollar for your property.
3. It is more di cult to sell an assignment because many builders will not let you advertise until registration.
4. If you do not rent the property for the minimum one year, you will not be eligible for the HST rebate. This means your taxes could be taxed at 100% instead of the standard 50% capital gains. The government could see you as a trader rather than an investor because you ipped the property instead of renting it.
5. We think you will make more money by keeping the property to rent it out long term.
HOW MUCH OF
MY PROFIT IS TAXED?
When you sell your investment property, you are required to pay a 50% Capital Gains Tax on your Net Pro t. You are entitled to deduct expenses used to achieve your investment from these gains. For example:
Selling Price Purchase Price Pro t
$800,000 $500,000 $300,000
Expenses ($100,000)
Net Pro t $200,000
50% Capital Gains Tax ($100,000)
Taxed Pro t $100,000
Pierre Carapetian Group | RE/MAX Hallmark
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The remaining $100,000 is added to the purchaser’s annual income and taxed at the appropriate rate for that individual. We recommend getting advice from your accountant or lawyer at this stage.