How Do I Report Capital Gains in BC?

How Do I Report Capital Gains in BC?

In the first part of our capital gains series- Capital Gains in Vancouver- How to Reduce Your Taxable Income– we looked at what capital gains are, how they’re incurred and potential ways to mitigate or minimise the tax payable when you sell your property in Vancouver. Once you have determined whether you have incurred a taxable capital gain, it’s important to understand the process of how to actually report it to the Canada Revenue Agency.


When Do You Report a Capital Gain or Loss?

Reporting a capital gain or loss is required when you have disposed of a capital asset. For ease of understanding, we will refer to property (real estate) as that asset from here on in. You are required to report this gain in the same calendar year that you sell the property (January to December).

It’s also important to note that regardless of whether you made a gain or loss, or whether you are required to pay tax on that gain (for example, if it was not your primary residence), you must still report the sale on your income tax return.

If the property was your primary residence you will not be subject to tax on the capital gain. However, if it was a second property, 50% of the gain you make from the sale of the property is considered taxable income.

As a reminder, there is no stand-alone ‘capital gains tax.’ Rather, this figure needs to be added to your personal income for that calendar year, and you will be taxed on your overall income (including this figure), based upon your marginal tax rate for that calendar year.


How to Calculate Your Capital Gain

When it comes to calculating your capital gain on real estate, you first need to determine your adjusted cost base. This is the overall cost of the property, not just the original price you purchased it for. We strongly recommend the use of an accountant or financial professional in this step, but for the sake of example let’s say:

  • You paid $500,000 for your property

  • Plus an additional $25,000 in fees to acquire and sell it.

  • And whilst living there, spent $125,000 on renovations/permanent improvements

Your adjusted cost base would be equal to $650,000.

If you then sold the property for $750,000 your capital gain is actually $100,000, as opposed to $250,000 (based on the original purchase price alone).

Of this $100,000 only 50% is taxable. Although you need to report the transaction itself, only $50,000 would be added to your annual income for that calendar year, and you will be taxed depending on the marginal tax rate that applies to you.


How Do I Report Capital Gains Tax in British Columbia?

In B.C., capital gains or losses are reported on a Schedule 3 form. It is a self-reporting system, and once you have calculated your adjusted cost base and other expenses is really just a simple form to record the numbers. Of course, you are also required to have evidence to substantiate these figures. The submitted form must include:

  • The year of acquisition (the year you purchased the property in B.C.)

  • The proceeds of acquisition (the sale price)

  • The adjusted cost base

  • Any fees or costs associated with the sale of the property

  • The overall capital gain (or loss) resulting from the sale of your property

The Schedule 3 form for reporting capital gains (or losses) in BC

The Schedule 3 form for reporting capital gains (or losses) in BC

If you’re looking for ways to defer or minimise your capital gains, or aren’t sure if you’ve incurred a capital gain, please reach out and connect with our team. As some of the top-performing Realtor’s in Vancouver, our team is ‘on the ground’ and always adapting to the current state of the market, in order to assist our clients to acquire and profit from their property investments.

Simply reach out and connect for more information, or to see if we can help you!

Which Buildings Allow Airbnb/VRBO in Vancouver?

Which Buildings Allow Airbnb/VRBO in Vancouver?

Almost every strata/condo building in downtown Vancouver has voted through bylaws not permitting short term rentals. Although there are strict rules surrounding the issue, there are some strata buildings which still allow for short term rentals like Airbnb and vacation rentals by owner (VRBO). You will need to apply for a license to do so, but knowing which properties allow short term rentals may factor into your investment decisions.


Does Vancouver Support Short Term Rentals?

The rise of Vancouver property in the last decade has priced a lot of residents out of the market. In order to make housing more available and affordable, a number of taxes have been implemented to try and resupply the market with unused or vacant properties. Similarly, the City of Vancouver has implemented rules and regulations surrounding short term rental properties, such as those used for Airbnb, in attempt to make housing more affordable for city residents.

A ‘short term’ rental is one that occurs for less than 30 days. Prior to April 2018, the only short term rentals available were licensed hotels and bed and breakfasts. From September 2018 however, homeowners have been able to apply for a short-term rentals business license, and use their property to supplement their income.

Whilst short term rentals are now permitted, they must:

  • Adhere to the City of Vancouver rules surrounding Airbnb/VRBO

  • Be permitted by the strata bylaws

Does My Vancouver Property Qualify for Airbnb?

The main stipulation when it comes to the short term rentals license in Vancouver is that the property must be your primary residence. That is, you live in it for at least 180 days of the year. The rental can be the entire home or a room within it, and property owners must acquire both the license and approval from their strata body to qualify. It also needs to meet the required safety standards, such as fire safety, and be considered a legal dwelling.

It’s important to note that these restrictions only apply to strata buildings. If you own a freehold property you are free to use it as you wish.

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Strata Buildings That ALLOW Airbnb in Vancouver

Whilst we aim to maintain the accuracy and recency of this list of Airbnb/VRBO approved properties in Vancouver, strata rules can literally be changed at any time. The following details the most up-to-date list for buildings that allow for short-term rentals for Airbnb/VRBO, as well as which strata buildings in Vancouver allow short-term rentals for 30 days or more.

For the most up-to-date information regarding which strata buildings allow for short-term rentals in Vancouver, or if you’re looking for a buyers agent to acquire one of these properties, please reach out and connect with our team.

  • 618 and 688 Abbott Street (Also same at 58 Keefer Place as they are same development) – Firenze

  • 689 Abbott Street – Espana

  • 555 Abbott Street – Paris Place

  • 1060 Alberni Street – The Carlyle

  • 907 Beach Avenue – Coral Court

  • 890 Broughton Street – 890 Broughton

  • 1050 Burrard Street – Wall Centre

  • 1160 Burrard Street – 1160 Burrard

  • 1238 Burrard Street – Altadena

  • 1010 Chico Street – Chilco Park

  • 933, 955, & 983 E Hastings Street – Strathcona Village

  • 1228 Homer Street – Ellison

  • 1331 Homer Street – Pacific Point 2

  • 1010 Howe Street – Fortune House

  • 183 Keefer Place – Paris Place

  • 188 Keefer Place – Espana

  • 718 Main Street – Ginger

  • 1166 Melville Street – Orca Place

  • 87 and 89 Nelson Street – Arc

  • 989 Nelson Street – Electra

  • 28 Powell Street – Powell Lane

  • 933 Seymour Street – Spot

  • 1372 Seymour Street – Mark

  • 141 Water Street – Malkin Building

  • 33 West Pender Street – 33 West Pender

Strata Buildings in Vancouver That Allow Short Term Lease/Rental- Minimum 30 Day Lease

Whilst some strata buildings in Vancouver allow Airbnb/VRBO, others require a minimum 30-day lease term to be eligible for short term rental. Similar to rental properties allowing less than 30-day terms, these restrictions are dictated by individual strata regulations and can vary between buildings, or change with each meeting of the strata body. It’s also important to note that property owners are still required to adhere to the City of Vancouver rules surrounding short term rentals, including acquiring a short term rentals business license.

At the time of writing, the following properties allow for short term rentals in Vancouver, for a minimum lease length of 30 days:

  • 27 Alexander – Alexis

  • 1200 Alberni Street – The Palisades

  • 1288 Alberni Street – The Palisades

  • 1003 Burnaby Street – Milano

  • 928 Richards Street – Savoy

  • 188 Keefer Street – 188 Keefer

  • 1133 Hornby Street – Addition

We will continue to add to/maintain this list as new information becomes available. If you are aware of any other strata properties that allow Airbnb or VRBO in Vancouver or would like to notify us about incorrect/out-dated information please don’t hesitate to contact our team.

Evaluating Investment Properties in Vancouver: Cashflow and Profitability

Evaluating Investment Properties in Vancouver: Cashflow and Profitability

For first time investors, property investing can be a safe and tangible means of wealth creation. It allows you to leverage a downpayment to acquire an asset, and if you find the right property can generate both income and profit. However, there are a number of variables that need to be considered in order to determine accurate property cashflows, equity, and profitability, to decide if the investment is worth it.


Property Investing in Vancouver: Getting Started

Property investing is unique in that it allows you to leverage a smaller position (your downpayment) to acquire an asset that can be 5-6 times higher in value. For many it is an attractive, time-tested and relatively safe investment to make. However, just owning and renting a property doesn’t mean that it is generating a positive cash flow, nor that it is going to be a profitable investment on your part.

Rather, investment properties need to be evaluated on several criteria

  1. Cash flow
  2. Likelihood of appreciation
  3. Ease of renting
  4. Unit/building expenses
  5. Personal element

Your agent is the best source of information for a lot of this data and should have extensive knowledge of the state of the current market, neighbourhoods, and new developments in the area you’re interested in.


Cashflows: Positive, Neutral and Negative

Cash flow looks at the total flow of cash moving in and out of the investment. That includes any rental income, as well as deducting expenses such as strata, repayments, repairs, property taxes etc… Cash flow can be positive, neutral or negative, and can affect the overall profitability of your investment.

  • Positive cashflow: your investment is generating more from rental income than your monthly expenses and payments, generating additional income for you.

  • Neutral cashflow: the rental income is enough to cover all expenses/payments, but not to generate income

  • Negative cashflow: your payments/expenses are more than your rental income. This requires additional financial input to cover repayments.

In Vancouver, while rental rates are high, so are property prices. Positive cash flow to any significant level at the outset is impossible unless you’re putting down 35% or more (approx.). However, savvy investors love investing in Vancouver because of the number and quality of tenants, the trajectory of this world-renown city, and the historical performance of these investments.

Furthermore, a neutral cash flow will still see about 60% of each mortgage payment being paid towards your equity, which can make the property quite profitable when taken into account. Whilst positive cash flow may not be available immediately, it can become possible after principal repayments have been made, and depending on the intended term of the investment could still reap benefits long term.

What Can Affect My Cash Flows

There are a number of variables that can affect the cash flow and profitability of your property investment in Vancouver. These can affect how much rent you’ll be able to charge, your expenses, and whether there will be demand for your property and it’s location.

  • Market Variables
    -Is there a strong rental market?
    -Competition/availability in the area?
    -Standard of living
    -Proximity to amenities
    -Will a new development affect your ability to let?

  • Property Variables
    -Building expenses and maintenance costs
    Property taxes
    -Contingencies for damage/repairs

  • Financial Variables
    -Rental income
    -Purchase price

Evaluating a property investment should try to quantify and qualify as many of these factors as possible. The more informed your decision, the more likely you are to benefit from the investment.

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Calculating Profitability of Vancouver Property Investments

To figure out what sort of profit could be made from your property as a rental the main factor to consider is your downpayment amount. This would in turn give you a rough idea of how much your monthly mortgage rate would be. Along with this, you factor in things like strata fees, yearly property tax etc… to give you a base amount per month.

Right now mortgage rates are incredibly low which is a huge bonus for you as a buyer. Access to finance and lower repayments can contribute to a larger investment on your part, or reduce the burden of the investment.

Your downpayment will affect your mortgage rate and amount, but with those figures, you can calculate your monthly costs.

Monthly costs = mortgage payment (governed by downpayment size and interest rate) plus strata fees, plus annual property tax amount, divided by 12.

Once you know your monthly costs you can work with your agent to analyse market data, such as current rental prices, property prices, neighbourhoods, and individual properties and match them up to determine if your property would be

a) cash flow positive, and

b) determine if your investment would be profitable.

What About Building Equity?

A positive flow of cash is only one of the ways to turn a profit from property investment. Whilst it can make it more attractive, using the available data and your agent’s knowledge/experience, you can build a thesis as to the likelihood of value appreciation, and determine whether the equity acquired/value built is worth the upfront capital.

A good rule of thumb is to plan to hold onto a property for a minimum of 5 years. This obviously depends on many things, but ideally, you want to be in a position where you don’t have to sell at any particular time, just in case. Of course, it will also be dictated by the evolution of your personal circumstances over time.

Below is a graph of the MLS HPI pricing index. The HPI price is the board’s way of most accurately calculating true average prices. Downtown falls under the area of ‘Vancouver West’.

If we look at Vancouver West (west of Quebec Street – one block west of Main Street) apartments, we can see that over the past 10 years the HPI price increased from about $430k to about $790k. The annualised rate of return is about 6.1% based strictly on this.

However, this does not take into account the ‘leverage’ aspect of real estate investing (using 20% of purchase for an asset worth 5x as much) nor does it take into account the assured equity building each month with every mortgage payment made.

More accurately, we would need to use:

  • the initial cash investment of 20% of $430,000 ($86,000), and compare that to

  • the end equity position (790k-430k = $360k)

  • plus let’s say about $1,000 paid toward the equity component of the mortgage every month for 120 months ($120,000).

So, we start with $86,000 cash and end up with equity of $480,000. The actual annualised rate of return would be 262% in this example. If you were to sell, the profitability would be just under $400,000, before closing costs and expenses are taken into account.

Note: the formula used for annualised rate of return was [(ending value of investment/beginning value of the investment) to the exponent of (1 / 10 years)] – 1

Is Now a Good Time to Invest in Vancouver?

The property market in Vancouver over the past 10 years has been bullish. Strong demand has even seen the introduction of the City’s Vacancy (Empty Homes) tax in 2017, and the more recent provincial Speculation and Vacancy tax to try and increase supply.

More recently, 2019 saw a slower than usual Vancouver property market, until Q4 where we started to see renewed vitality. This transferred into 2020, and even with the pandemic, we have seen the Vancouver Real Estate market hold strong and continue to flourish.

In November of 2020 sales reached almost 25% above the 10-year average and we had a 3.4% increase in prices of apartments overall compared to November 2019.

Whilst we would expect property transactions in the Downtown core to stay a little slower while the world navigates COVID, we also expect vaccinations to see some normalcy return to the market, and see the return of higher demand.

Ultimately investing in real estate uses leverage to acquire a robust and tangible asset. Regardless of market forces, as the city of Vancouver continues to grow so too will the need for housing. However acquiring the right property can be the determining factor in deciding whether your property is the right investment, and a profitable one to boot.

Your agent is the best source of information when it comes to calculating cash flow, assessing the state of the market, and accounting for unknown or ill-considered variables. If you’re interested in property investing in Vancouver and would like more information, reach out and connect with us.

Buying Pre-Sale Property in Vancouver- What You Need to Know

Buying Pre-Sale Property in Vancouver- What You Need to Know

Purchasing a pre-sale or ‘off-the-plan’ property in Vancouver gives you the opportunity to purchase property that has not been built yet. It can give you more time and flexibility to finance the purchase, may reduce some taxes, and allows you to make customisations to your property before it is even built! However purchasing pre-sale comes with its own set of risks to understand, and here’s what you need to know.

What Does Pre-sale Mean in Real Estate?

Pre-sales are a common component of the Vancouver Real Estate market. In its simplest form, you are pre-purchasing a property that is yet to be built (or in some cases in the early stages of construction).

For a lot of prospective buyers, a pre-sale condo is the most cost-effective way to enter the property market, as there are a number of advantages offered:

  • More time to accrue/obtain finance. When purchasing pre-sale, you only need to have your downpayment available. Depending on the contract there may be other smaller payments along the way, based on the schedule of construction. Generally, however, the entire payment is not due until the building is completed, which may provide a few extra years to save, and lower your mortgage amount to boot.

  • Depending on the state of the property market in Vancouver, your property may appreciate over the time that it is built.

  • Your downpayment and deposits are held in a lawyer’s trust account. This restricts the developer from accessing the funds until the building is complete.

  • New properties are subject to mandatory home warranties and insurance. This gives you a minimum of two years on the labour and materials, five years on the building envelope, and ten years on the structure of the building itself. By comparison, purchasing an existing property may not come with these warranties, which could increase the overall cost if you needed to rectify an issue.

  • You get a brand new home! Being involved from the start may give you the opportunity to customise the layout, finishes, colour scheme and more to make sure the property you move into is the one you want, from day 1.

What Are the Risks With Pre-Sale Property in Vancouver?

As with any investment or large financial purchase, there are inherent risks. When it comes to pre-sale property, however, there are a unique set of risks to understand.

  1. Purchasing a pre-sale property as an investment is highly speculative. As these buildings can take years to complete, you are taking on the assumption that the property market will continue to appreciate, which may not be the case.
  2. Even though the property market may change, you are usually purchasing your pre-sale condo at a premium to those currently available. This is because most pre-sale developments price their condo’s on the assumption that property prices will increase, not decrease. As a result, you may pay up to 30% more for pre-sale than you would for an already completed property.
  3. Most pre-sale developments end up taking longer than expected. These delays can range from a few months up to 1-2 years. Regardless of whether the scheduling delays are caused by the developer or some external reason, there are usually clauses in the contract of sale which heavily favour the developer in these instances. This can make it difficult to plan a move-in date, and delay your own plans for your new property.
  4. If a developer needs to make changes to the floor plan, materials or other design elements to comply with building codes they usually reserve the right to make these changes without notifying you. As such, the purchase you agree to in a showroom 3 years prior to the finished product can be different from the property you actually receive.
  5. Your personal finances may change between signing the contract and the building’s completion. If you lose your job or something else impacts your income, you may not be able to access finance when the property is ready and lose your downpayment.
Delays in construction are common, and can be an inherent risk when purchasing a pre-sale condo

Delays in construction are common, and can be an inherent risk when purchasing a pre-sale condo

Can I Reduce My Tax by Purchasing Pre-Sale?

The property transfer tax (PTT) is one closing cost that often catches home buyers off-guard. It is based on the sale price of a property, at 1% of the first $200k, and a further 2% of the sale price from $200k-$2 million. As a first home-buyer, you may be entitled to a PTT concession, but only if the property is valued at less than $475,000, which isn’t very common in Metro Vancouver these days.

Purchasing a pre-sale property, however, can exempt the sale from the property transfer tax, provided the property is priced at $750,000 or less.

Whilst that is a win for the home-buyer, newly built properties are instead subject to 5% GST. This expense is usually in addition to the sale price of the property and should be accounted for when assessing your own finances.

If the property is to be used as your primary residence, there are opportunities to reduce your taxable capital gains in the future. However, this would be based on price appreciation, among other things.

How Do I Know I’m Purchasing the Right Pre-Sale Property?

Whilst there are never zero risks, there are a few things you can do to reduce the risks associated with a pre-sale property purchase:

  1. Do your homework.
    Is the developer established and reputable? Do they have a good track record and happy clients? Is the property being built in an up and coming neighbourhood? Will there be access to services and other essentials?
    It’s important to look at the development as a whole and what it can offer you, not just the condo you wish to purchase.
  2. Use a buyers agent!
    The best way to understand the property and neighbourhood is to use a licensed Realtor. They should be very aware of the area itself and new developments, including the positive and negative features of the development, and offer you industry-specific insights and advice.

In the same manner that you would assess the developer and development, choosing the right agent can make all the difference to your pre-sale property purchase in Vancouver.

It’s also important to keep in mind that a buyer’s agent does not cost you anything! Rather, a buyer’s agent is paid by the seller upon settlement of the property, so you have nothing to lose by letting the professionals help you.

If you’re interested in a pre-sale property, or another home purchase in Vancouver, the West Haven Group is here to help. Simply reach out to our professional team to schedule an obligation-free meeting.

-We look forward to working with you!

Is Renting Out a Property a Good Investment?

Is Renting Out a Property a Good Investment?

Earning an income on property is a time-tested and appealing way to generate wealth. However, earning an income doesn’t necessarily qualify as a good investment. Whether you’re taking into consideration your personal circumstances or access to finance, the long term intentions for the property, or the restrictions and stipulations of  B.C. Tenancy Law, there are a number of key considerations when it comes to deciding whether renting out a property is a good investment.

What Makes a Good Investment?

Before we can determine whether renting out a property is a good investment, we need to look at investing in general. Whilst most people understand the tangibility of property investing, it is only one of many assets that you can invest in. Other assets include:

  • Equities (stocks)

  • Bonds (both corporate debt issuance and government bonds)

  • Cash

  • Digital Assets

  • Commercial Property (office space, warehouses)

In all cases, choosing to invest in an asset class is about using your money to greater effect, either to increase your asset holdings or generate positive cash flow. Where stocks and bonds may return a % yield, property investing can generate income in the form of rent, and/or a capital appreciation on the property you purchase.

For most people, property investing is the go-to choice, as you are granted ownership over something physical, and will still own the asset even if the property isn’t rented. As to whether it’s a good investment to rent out your property though- you’ll need to start by establishing your investment strategy.

What Is Your Investment Strategy?

There are a number of key questions to ask when considering purchasing or renting a property for yield. Aside from the obvious income generation, these primarily revolve around why you looking to purchase/rent a property. These include:

  • Is it to live in at a later stage, or is it purely to generate income?

  • Will the property run cash positive, or is a negative cashflow better for tax purposes?

  • Is it still cash positive with expenses taken into account?

  • Am I aiming purely for yield/return on investment, or also for property appreciation?

  • How long do I intend to keep the property?

  • Can I afford long periods of vacancy, or do I have a mitigation strategy for them?

  • Is this my only investment/income stream? Can I cover losses or make up the difference if I need to?

  • Am I aware of the B.C. tenancy laws?

  • Have I considered the strata body restrictions, which could affect the rental of the property?

Purchasing property (regardless of the intent) is one of the largest financial decisions we can make. However it is also one of the most emotional, and that can often act in detriment of good property investment. That is, people tend to purchase a property they like, rather than one that is going to see the greatest return.

That’s why it’s important to establish early what your intentions are with the property. If you’re looking to generate some short-term income, and move into the property later, you may choose to purchase something you can see yourself living in too. If you’re aiming purely for yield, perhaps the location of that property becomes less important. If you’re dividing your current property into separate rentable flats, you need to determine if the rental yield is enough to justify the division and on-going relationships with tenants. At The West Haven Group, we are more than happy to run through some of these considerations with you, to determine whether property investment is the right choice for you.

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How Do B.C. Tenancy Laws Affect My Rental Property?

If you decide to become a landlord in B.C., your property will be governed by the Residential Tenancy Act and B.C. Tenancy Law. Strata bodies can also impose restrictions on the use of your condo or other strata-titled property.

Understanding how this legislation can and will affect your property can become a key consideration when deciding if renting it out is a good investment. These restrictions can also affect your personal circumstances and intentions, especially if you plan to move into the property at a later date or purchase one that is already occupied by tenants.

Generally speaking, the landlord-tenant relationship is easily managed and monitored, be it in person or through an agent. However, in cases of dispute, B.C. tenancy laws lean heavily in favour of the tenant. For example, there are rules for landlords when it comes to:

  • Damage deposits

  • Rent increases (you can only increase rent once every 12 months, and it is based on the inflation rate, not one of your choosing)

  • Access to the property

  • Notice to vacate

  • Changes to the terms of the tenancy (can only occur if both parties agree to it)

  • Ending a tenancy

  • End of lease agreements. After the agreed rental term the lease moves to a month-to-month contract, which is also governed by the same tenancy rules and agreements.

In some more extreme cases, failing to adhere to these laws/restrictions can also result in you having to compensate the tenant for up to 12 months of rent. When it comes to owning an additional property in Vancouver, you are also subject to the recently imposed Empty Homes (Vacancy) Tax.

The tax is clearly working, as it is returning unused properties to the rental market. However, from an investment standpoint, this means there is more choice for renters. It also means that if your property is empty for more than 6 months of the year, you may be subject to an annual 1.25% tax (based on the assessed value of your property).

The Pro’s and Con’s of Property Investing

Before you can start to determine if renting your property is a good investment, it’s important to weigh up some of the pro’s and con’s of property investing.

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So Is Renting Out a Property a Good Investment or Not?

If you have a second property already and it is sitting unused, then in most cases yes, turning that property into an income stream can be a good move. If you are looking to purchase additional property to generate rental income, however, there are other key factors that could affect whether it’s a ‘good’ investment:

  • The type of property you purchase.

  • The price you purchase it for.

  • The return on investment (yield/rental income) and whether this is manageable given your current circumstances.

For example, this case study looked at 3 different property types in Vancouver. The study compared purchasing property as an investment against an equal investment in the stock market, over a period of 25 years. Although it doesn’t look specifically at the addition of earning a rental income on that property over the time period, it does compare the initial capital investment. It found that:

  1. The value appreciation of buying a condo was actually negligible compared to the stock market investment.
  2. Purchasing a townhouse or single-family house in Vancouver did lead to capital appreciation and more than the stock market investment. Whilst that appreciation was larger for single-family homes over a townhome, in both cases, it still took 15 years to realize these gains. This indicates that if you’re purchasing a second property for capital appreciation as opposed to the cash flow provided by the rent, you will need to hold the property for an extended period of time to see that real value gain.

Key Advantages of Property Investing

Although that study takes into account the initial investment, it fails to take into account the key advantages of property investing, compared to other investment vehicles:

  1. The primary benefit of choosing to invest in real estate is that your investment should see capital appreciation, while at the same time the rental income is paying for the mortgage payment (both the principal repayment and interest payment components). As a result, a property investor is building guaranteed equity with every mortgage payment- which is paid by every rental payment.
  2. Investing in property allows you to leverage your investment. For example, if you have $100k to invest you can only purchase $100k of stocks. However, with real estate, the $100k allows you to become the owner of a $500k asset.


How to Maximise Your Property Investment Return

The key to maximizing your returns from property investing is in purchasing the right property. Whether that means the property is purchased at a ‘good price,’ has a strong rental return, or is in an area that is likely to appreciate, finding the right property can make your investment more lucrative in the long term.

When it comes to doing the research and finding this type of property using an experienced and professional Realtor can:

  • Help you to understand the current market conditions

  • Find a property that suits your needs and your budget, to either ensure or help you decide if the return on investment will work for you

  • Time the market so that you either invest less capital upfront or can find a property with good potential for value appreciation as well as rental income

  • Help you to set up the property with the right legal, accounting and financing structure

In addition, it’s important to determine if the yield/return on investment is enough to justify the purchase of the property. In the end, you’re looking for positive cash flow, and a sufficient return when compared to other potential investment vehicles. This will be determined primarily by how much rent you can charge, how much your expenses are, and whether you actually end up in the positive after they have been taken into account.

In Vancouver, the rent you can charge will be dictated by the property type and its location. Desirable neighbourhoods like Yaletown and the North Shore hold the potential for regular/annual rent increases, helping you to stay level with inflation and cover all expenses. These areas also tend to see the lowest vacancy rates, which can help to secure your cash flow in uncertain market conditions.

Longer-term investments should also take into account the wider community and access to amenities. Are there new schools and shops being built? Is it close to transit and recreation? Can you justify increasing the rent annually, based on the property type/location?

Ultimately, determining if renting a property is a good investment comes down to preparation and planning. Once you have assessed the risks, taken expenses into account and analyzed your capital and cash flow, you will have a better idea of whether renting your property is a good investment.

At the West Haven Group, we can help you to evaluate your research to determine if the property you’re looking at is the right one to invest in. Similarly, as Vancouver’s top Realtors, we can help you to find the right property, to help you generate income, value appreciation, or both. For more information simply reach out and connect with our experienced team, we look forward to hearing from you!

Do Capital Gains Count as Income?

Do Capital Gains Count as Income?

In Canada, buying and selling assets- at a profit- is considered a form of additional income. This profit is referred to as capital gains, and, as with any form of income, it can also incur additional tax. Although capital gains are not a tax in and of themselves, they do count as income in most circumstances. Whilst you may incur capital gains on a wide variety of tangible and intangible assets, today we’re looking specifically at real estate, to determine if your capital gain will count as income.

I Just Sold My Property- Does That Trigger a Capital Gain?

A capital gain is triggered when the value of an asset increases compared to what was paid to acquire it. This is also known as a ‘realised’ capital gain, and when it comes to physical property like your house, the rules are no different.

Regardless of when the property was purchased, if it is sold for more than the original purchase amount- it triggers a capital gain.

The good news is that only a portion of that capital gain is considered income. Regardless of where in Canada you live, that portion is 50% of the capital gain (after deducting expenses). The confusion surrounding capital gains is usually surrounding how it is taxed, and how it actually affects your income. 

So to simplify it- the actual tax you pay depends upon your other sources of income in the same calendar year that you sell your property. Your total income determines your personal tax rate, and in circumstances where the capital gains count as income, the dollar amount is added to your personal income. It is not taxed separately.

There are, however, a few situations where your capital gain will not be considered income.

How Do I Know If My Capital Gains Count as Income?

There are two primary test cases to determine if your capital gain will be counted as income.

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  1. Was the property your primary residence, or designated as such? If yes, the capital gain will not be counted as income, and will, therefore, not affect your taxable income.This is particularly important for people with more than one property, as it may be beneficial to declare the more highly valued property (or whichever property has/stands to make the largest capital gain) as the primary residence.
  2. Did you purchase the property using your Registered Retirement Savings Plan (RRSP) or similar initiative? Any investments made under these schemes are tax-sheltered and the capital gain will not count as income.You will still pay tax on it eventually, but in most circumstances, it will not be until retirement, and then it will be at the marginal tax rate. It also means that any RRSP investments compound at a pre-tax rate, giving your investments (and retirement savings) a boost in the long term.

There are some mitigating factors which may also change the nature of your capital gain, such as whether you inherited the property. For example, if the property that is passed down was a principal residence, it will not trigger a capital gains event, and therefore not be counted as additional income.

On the other hand, if more than one property is passed down, the capital gain (assessed based on the fair market rate at the time of inheritance) will be considered income on each additional property. For strategies to minimise your capital gains, how much is counted as income, or the amount of tax you’ll pay on said gains, please see Capital Gains in Vancouver- How to Reduce Your Taxable Income.

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For any other property-related inquiries, reach out and connect with us!

Our professional and dedicated team can help you to implement strategies to reduce your taxable income from capital gains, and learn the most effective ways to re-invest that capital!

Property Ownership Part 2: Joint Tenants vs. Tenants in Common

Property Ownership Part 2: Joint Tenants vs. Tenants in Common

Although the use of ‘tenants’ can easily be confused with property rental, both joint tenancy and tenancy in common actually refer to a type of shared property ownership. For homeowners, choosing the form of ownership will dictate what happens to the property in the event of one owner passing, and can also affect the amount of tax to be paid at that time.

In part 2 of our property ownership property ownership series, we dive into the differences between joint tenants and tenants in common, to highlight the distinct differences between the two, how they affect your ownership of real estate, and how to decide which one is right for you.

Joint Tenants

Owning a property as ‘joint tenants’ is most commonly seen in a marriage or relationship, where both parties own equal portions of a property. This form of ownership carries with it the ‘right of survivorship,’ whereby the ownership automatically transfers to the surviving party, in the event that one of the owners passes away.

In B.C., joint tenancy also affords both owners full use and rights over the property. Upon the death of one person ownership of the property transfers to the remaining party, avoiding any probate fees and taxes that would usually be incurred. Similarly, if it happens that there are more than two parties to a joint tenancy agreement, the remaining ‘tenants’ receive the deceased’s interest in equal proportions in the event of one’s passing.

Although the right of survivorship avoids probate fees and capital gains tax, that tax will still have to be paid by the estate at the passing of the last survivor.

Tenants in Common

Unlike joint tenancy, tenancy in common does not come with the right of survivorship. It is more common whereby two or more parties purchase property as an investment, and fractional ownership is more prevalent. Key points of difference in tenancy in common agreements include:

  • Tenants can choose to own equal portions of a property, or ownership can be divided into any number of ways. For example, one owner may own 75% of the property, and another the remaining 25%. This may be useful in cases where owners make different contributions to the purchase.

  • Each tenant in common has the right, and freedom, to allocate their share of a property to another person via their will, a property transfer and even a sale. This is because ownership is fractionalised, and can therefore be ‘portioned’ and sold, without selling the entire property.

  • In the event of death of one or more parties, the transfer of ownership of their property portion will be subject to probate fees. Put simply, this fee is to obtain a grant of probate, which is used by the Land Title office to approve the transfer of ownership of the property, guarantee the validity of the deceased’s will, and conclusively manage any other stipulations/challenges against the estate.

In British Columbia, probate fees generally amount to 1.3-1.4% of the estates value. Whilst this may sound small, with the property price increases of the past decade it can actually be quite a substantial figure.

Typically if you are purchasing property with your spouse or de-facto partner, joint tenancy is the preferred choice. On the other hand, there are a number of reasons that people prefer tenancy in common ownership:

  • Purchasing property as an investment with people who are not intended to be beneficiaries.

  • Purchasing property as an investment where the size of each persons investment (and therefore their proportional ownership over the property) varies.

  • The ability to keep the investment separate and transferable in a will, which is most commonly used to provide for children from a previous marriage.

tenant-in-common agreements can be passed down to beneficiaries

Joint Tenants vs. Tenants in Common- Which One Is Right for Me?

Without having an in-depth conversation it is difficult to determine which form of joint ownership is best suited to your circumstances.

There are, however, a number of considerations which may affect your decision.

  1. Owning property as joint tenants will avoid probate fees upon one owners death, however owning property as tenants in common may give you access to a higher first home buyers grant (if/when available). This is because ownership in a tenants in common agreement gives you rights over a proportional amount of the property, and can therefore entitle each owner to the grant.
  2. If taking advantage of this grant (or simply in the event of a change of circumstances) property titles can be transferred into joint tenancy at a later date. However this may incur a property transfer tax and other fees, which should be taken into consideration.
  3. Purchasing property with another party does not automatically grant joint tenancy. Rather it must be stated in express terms that a joint tenancy agreement is in place, or it is assumed that the parties to the agreement are tenants in common. This is stipulated in the The Property Law Act in B.C.
  4. Joint tenancy agreements can be ‘severed’ under a number of circumstances, and revert back to a tenants in common agreement, without the notification, consent, or awareness of those in the agreement.
  5. Under a joint tenancy agreement, you cannot sell or mortgage the property without the express permission of all people involved. As such, a tenants in common agreement may be better suited to your needs, as you have the right to use and control your portion of the estate.

If you are unsure of the best form of ownership for your new property, we’re here to help!
Our dedicated team are on the ground in Vancouver, with the latest property insights and up-to-date knowledge surrounding the legalities of property ownership.

Follow this link to see our current listings, or simply reach out and connect with us for advice or more information.

We look forward to working with you!

Capital Gains in Vancouver- How to Reduce Your Taxable Income

Capital Gains in Vancouver- How to Reduce Your Taxable Income

The Vancouver property market has seen some incredible growth in the past few years. However, as properties are sold, if they have generated a profit, they also incur a taxable event. Otherwise known as capital gains, this figure is added to your personal income, or claimed by the estate. Understanding how this taxation works, as well as how to reduce, defer and mitigate this figure, could be crucial in deciding whether to purchase or sell real estate in Vancouver.

How Do You Incur Capital Gains in Vancouver?

A common misconception of capital gains is that it is a tax in and of itself. However, there is no ‘capital gains tax.’ In its most simple form, you incur a ‘capital gain’ if/when you have sold your property, for more than you purchased it for. Conversely, if you sold your property for less, you would incur a capital loss and can use that loss to offset other capital gains or carry it forward to offset capital gains in future years.

Of course, this number is not a black and white figure. There are fees and deductions that will affect the gain itself, such as fees and costs associated with buying and selling said property. There are also other mitigating factors that may affect whether you incur a capital gain at all, such as whether the property was your primary residence or additional investment property.

Moreover, capital gains in Vancouver are taxed at the same rate as the rest of Canada. The differences between Vancouver ( and really all of B.C.) and the rest of the country comes down to the provincial and national tax rates, as well as your personal tax bracket. This is because the capital gain itself (or at least the taxable portion of it) is added to your annual income, rather than being a stand-alone payment.

Capital Gains isn’t a ‘tax,’ it is a taxable event.

Capital Gains isn’t a “tax,” it is a taxable event.

What Is the Capital Gains Rate in 2020?

The rate in 2020 is unchanged and remains at 50% of the capital gain. When it comes to calculating what you owe, the following (simplified) example may help:

  1. You purchased a property for $500,000 and sold it for $700,000.
  2. The capital gain portion of the sale is $200,000.
  3. The rate is 50% of the capital gain, so $100,000.
  4. This figure -$100,000- is then added to your annual income for tax purposes, rather than generating a separate taxable item.
  5. The amount you pay depends on the personal tax bracket you fall into, as the $100,000 gain counts as personal income. To calculate your cumulative total for the year, see this link.

Can I Avoid Paying Capital Gains?

The short answer to this question is no. At some point, the tax owing from the capital gain will have to be paid. There are, however, a number of circumstances that may reduce your capital gain, or allow you to defer the payment.

  • If the property is/was your primary residence, you do not incur a taxable event when it is sold. This is important for people with more than one property, as it may be beneficial to declare the more highly valued property (or whichever property has/stands to make the largest capital gain) as the primary residence.

  • The numbers aren’t so black and white. The actual figure for the cost of your property is derived from your adjusted cost base. That is, if you purchased your property for $500,000 and then spent $100,000 in permanent improvements, your adjusted cost base is actually $600,000. Then, if you sold for $700,000 your total capital gain is only $100,000 as opposed to $200,000.

  • Although we are using examples pertaining to the property market, capital gains/losses encompass all assets, not just real estate. This means that if you have made any losses (for example in stocks or bonds), you can use these losses to offset the capital gain made on your property, thereby reducing the income amount added to your overall income. Note: Capital losses can only be offset against other capital gains- it does not reduce your overall income by the loss amount.

    As such, you may be able to reduce your capital gains in Vancouver by selling your property in the same year you have made other losses. Similarly, if you have losses from previous years carried forward, these can be applied against the capital gain and may reduce the taxable amount.

  • If you are in the position to, delaying when you sell your property may also factor into your strategy. For example, selling on or after January 1 puts you into the new financial year, giving you until April 30 the following year to actually make the payment.

    Historically in the Vancouver property market, selling in Spring tends to attract higher prices. This may earn you both a capital gain and give you longer to make the repayment. Conversely, if you have made gains on a number of properties or other assets throughout the year, selling one at a loss before the end of the financial year may help you to offset some of them. In doing so you can effectively reduce the total annual gain, and the amount of tax to be paid.

  • Make voluntary contributions to your registered retirement savings plan (RRSP) to defer (and lower) the tax payable. This allows you to make contributions pre-tax for any given year and allows that contribution to grow tax-free until the time of withdrawal.

    Although you can withdraw from your RRSP at any time, if you wait until retirement, that amount will have grown thanks to the power of compounding interest, and you will also only be taxed on it at the marginal tax rate. Presumably the tax bracket you fall into during retirement will be lower than during regular employment, thereby reducing your overall capital gain in the year you make it, as well as the tax payable longer term.

    In 2020, the maximum contribution amounts to your RRSP is:
    —18% of total income earned/reported on your 2019 tax return
    —Up to a maximum value of $27,230.

    So on a $100,000 capital gain you could reduce the sum that is added to your taxable income by $27,230. Depending on your other income sources, that figure could make the difference when it comes to assessing your personal tax bracket.

Additionally, the growth of RRSP investments is tax-sheltered. That means that any returns made within your retirement plan are exempt from additional capital gains, income, and dividend tax. It also means that any RRSP investments compound at a pre-tax rate, giving you a bit more bang for your buck.

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What if I Inherited a Property?

Death and taxes are a certainty of life, and when it comes to taxes you are considered to have sold all of your assets/possessions one minute before you died. When it comes to inheriting real estate, any capital gain made on the property still creates a taxable event. However, in most instances, it is the estate that must claim/pay the capital gain.

If you are transferring the property to a beneficiary- your child, for example- the property is assessed at fair market value on that day, and any taxable event arising from that transfer or its subsequent sale is based on that amount.

For example, you purchased a property for $100,000 and at the time of your death, it was valued at $500,000, creating a capital gain event of $400,000. With the current 50% rate,  $200,000 (or the amount after deductions) would then be added to the annual income of the beneficiary. The rate of tax they incur will depend on their individual circumstances. In addition, if you have more than one child, that $200,000 amount is split between the number of beneficiaries. Four children would result in each adding $50,000 to their personal taxable income.

Moreover, although the property can be transferred to a spouse tax-free, at the time of their passing, the gain will still be incurred and owed by the estate. Of course, planning ahead with your accountant, and making as many claims and deductions as possible can reduce the overall figure, however at some point, it will still need to be paid.

It is also worth mentioning that if the property that was passed down was the principal residence, the capital gains event will not be incurred. However, if you have more than one property at the time of passing, capital gains will need to be paid on each additional property.

At the West Haven Group, we can help you to sell your real estate assets at a time that is beneficial to you. We can also connect you to the right industry professionals, as well as help you to implement beneficial investing strategies. If you would like more information or would like to know whether now is the right time for you to sell your property in Vancouver, reach out and connect!

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Property Investing in Downtown Vancouver- Is Now a Good Time?

Property Investing in Downtown Vancouver- Is Now a Good Time?

A change in the seasons is upon us, and property in downtown Vancouver is entering a traditionally good period for the market. With global events leading to lower interest rates, the Vancouver property market is also heating up, as opportunities for better finance become available. Rather than reacting to recent events, however, we’re zooming out and taking a more macro view of the market, so you can decide if now is a good time for you to invest.

Why Is a Macro View Important?

As real estate professionals, it’s our job to extrapolate the current data and market conditions to help you to make more informed decisions. The choice to purchase, or sell, property is and always will be your choice. However, we wanted to sort through some of the available information, to bring you a calmer analysis of the situation, and help you decide whether now is a good time to invest in property in downtown Vancouver.

Case Study: Property Market in Vancouver

For almost 20 years, properties in Vancouver have appreciated in price. Driven by population growth and demand- both locally and from overseas- government intervention has recently become the only thing ensuring affordable housing options still remain.

Moreover, although the market was hit in the 2008 global financial crisis, it had a relatively soft landing, quickly recovered, and went on an almost decade long bull run. This sustained appreciation peaked in July 2017 (for the wider Vancouver area), and has since been in a state of correction- a flow-on effect from new policies, and a very healthy part of all market cycles.

The graph below shows the MLS® HPI pricing chart, which tracks relative price levels by comparing price levels at a point in time to price levels in a base (reference) period. This figure gives us a better overview of market trends since 2005 (pre-GFC), based on pure inflation/deflation, as opposed to the median sale price.

As you can see, there has been a gradual increase in property value since 2009, and even with the recent correction, property values have still risen by almost 100% since 2014.

Narrowing it Down: Property in Downtown Vancouver

In the past few months, buyers have returned to the Vancouver property markets as low-interest rates and investor confidence has begun to rebound, and more properties become available. This has been reflected more strongly in Downtown, as buyer demand continues to increase.

Moreover, when we look at specific locations for property in downtown Vancouver, we can see that traditionally- we are entering a strong period for both sales and demand. For example, we recently analyzed property data for Yaletown, and confirmed that even with the recent market correction, on average, the value of property still increased in spring for the district, and in Vancouver as a whole.

Since the start of the year, the property market has been hot. Data shows that property values and figures are on the rise. There are a number of reasons for this:

  • The seasonal appreciation we tend to see around this time of year

  • New opportunities afforded to us by a low-interest-rate environment

  • The market has had two years to adapt and rebound from the recent mortgage stress test, coinciding with the price decreases we saw across 2018 and 2019.

With Every Challenge Comes Opportunity

Recent data has shown the markets are once again in an uptrend since the 2018 lows, and by taking a macro view of the current economic climate, we can better analyse where the opportunities lay, and help you to make informed decisions.

However, we need to preface this with a simple statement- nobody knows the future. No one can truly predict when markets will rise and fall, by how much, or any other attenuating circumstances that may contribute to these fluctuations.

In addition, it would be remiss of us to not consider the effects of COVID-19, however, we also acknowledge that all of the current panic may just blow over in the coming months.

Early indications would suggest that the recent interest rate cuts have had their desired effect on property markets, and we have already seen markets begin to climb in 2020. If COVID-19 continues to slow global economies, we could see these rates become even more attractive, creating what many would call a ‘jubilee’ year for investing in property.

Couple this with the potential for mortgage stress it may create for some households, and the likelihood of foreclosures also becomes more apparent. For investors, these circumstances may present a never-to-be-seen-again opportunity- particularly in downtown neighbourhoods, which represent some of the most popular and sought after properties in the city.

Where Do the Opportunities Lie?

With every market cycle, there are new opportunities. In stable economies, however, it’s an opportunity that doesn’t come around very often. So, taking into account the possible effects of COVID-19, let’s take a look at where some of the opportunities lie.

First, if global economies continue to slow, loan defaults become more likely. Whilst this isn’t the best outcome for everyone, it does lead to some incredible buying opportunities as banks attempt to recoup the remainder of the loan, rather than the full value of the property. In a low-interest-rate environment, and on the back of a 10-year bull market, your opportunity to take advantage of these circumstances has just increased.

Second, recent legislative changes (coming into effect April 6) have lowered the level that you must qualify for in order to get an insured mortgage, which may serve to increase your borrowing power.

Third, if this virus or other economic impacts affect the market- we may even see interest rates go into the negative. While this concept may be hard to comprehend, if it comes to fruition it is also likely that some very serious economic incentives come into play to help you enter the market. Things such as increased first home buyers grants or other property tax credits. In some cases, we may even see banks pay you to take out a debt position.

Typically, when th
ese ‘black swan’ events play out, the effects are felt across all industries for a minimum of 12-18 months. Although the 2008 GFC saw a decline in Vancouver property prices, it was followed by the strongest property bull market in our recent history.

Those that are able to refinance may be looking at a once in a lifetime chance to acquire and invest in property in downtown Vancouver, ahead of another strong bull market. Furthermore, borrowing against the equity that you have gained over the past decade of appreciation, may present a real investment opportunity for you.

Is Now the Right Time to Invest in Property in Downtown Vancouver?

Low interest rates are seeing an increase in purchasing across the city, and as it stands the Vancouver property market is currently in an uptrend. Add to that the fact we are entering Spring- which usually sees property values appreciate- and these market conditions have created the perfect seller’s market.

So far in 2020, it’s been a strong seller’s market for condos under $1M and for houses under $2M, and there are bidding wars happening everywhere in these segments. The current demand is also a result of lower supply, and the ability for households to borrow more at lower interest rates, adding to portfolios and refinancing to take advantage of this environment. As to whether it’s a good time for you to sell or invest- that is and always will be your decision.

If you are considering selling your condo, or the possibility of acquiring another- we’re here to help! As industry experts, it’s our job to help you find the right investments and make the right choices now, for potential gains in the future. To see how our team at the West Haven Group can help, or for up to date market information, reach out and connect.