January 9 Market Update and the Final Answer on Suites

Weekly stats update courtesy of the VREB.

January 2017
Jan
 2016
Wk 1 Wk 2 Wk 3 Wk 4
Unconditional Sales 65
539
New Listings 130
934
Active Listings 1424
2471
Sales to New Listings  50%
58%
Sales Projection
Months of Inventory

4.58

Listing season is upon us.  January is when the listings start to pile on for the spring while the sales rush doesn’t really hit until February.  Hence the halving of the sales to list ratio from December.   Sales are a bit sluggish though, at about 20% behind last year’s sales rate.   Too early in the month to come to any conclusions about that though.  But I suspect every single month this year will be trailing last year on sales.

In other news, CuriousCat has followed up on the extensive discussion we had in the fall on whether capital gains will apply to the portion of your house that is a suite.   And the answer is a (edit: somewhat – see comments) clear yes.  So if you have a suite and sell your house, you will very likely need to pay capital gains tax on the proportion of the increased value of your house that is attributable to your suite.  In other words, if you bought a 2000 sqft place with an 800 sqft suite for $500,000 and sell it for $800,000, you will have a capital gain of $120,000 upon which tax must be paid ($60,000 would be added to your income).    That’s a pretty significant amount and depending on your income you could end up with a $30,000 tax bill.   The CRA has a full worked example here (you can ignore the CCA which most people won’t be claiming on a rental).

What is the effect of this on the Victoria market?  I suspect very little.  First of all very few amateur landlords will think ahead far enough to how much tax they may owe when selling, so it likely won’t influence their buying decision.   Secondly, the only reason the capital gains bites so hard right now is because of the massive increases in property values we’ve seen.  If property prices were appreciating at a more moderate pace the capital gains tax would also be less significant.

What do you think?  Does the fact that you’ll have to pay capital gains change your thoughts on suites at all?

 

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300 thoughts on “January 9 Market Update and the Final Answer on Suites

  1. Db:

    You are right about what motivates people. I know that one of the considerations when I bought the house was the existence of a back staircase that was large enough to have a small two person elevator installed if needed. i checked with Otis and they had a very reasonably priced hydraulic unit which would only take three weeks to install. For me that would be a good solution since my wife is a lot younger than me and is likely able to keep up with the gardening for another three decades. Does not work as well if both spouses are ailing.

  2. Vicbot:

    The other factor that I think has affected inventory is that the high prices over the last year has seen a lot of investment houses that were being used as rentals put on the market at a much higher rate than usual.
    At the same time the high prices for SFH motivated a lot of people to downsize perhaps a bit earlier than they would have otherwise. Basically the potential pool of inventory has shrunk.

    Perhaps Lisa helps can have the city start a programme to encourage extra marital affairs in order to increase the divorce rate which in turn would put more houses on the market. Weell, at least that would sound like one of her sound economic plans.

  3. I think you need to broaden your perspective. I had a client who lived in Uplands, sold it to buy a house on the Dennison ridge in Oak Bay. Then sold that and bought another property in Uplands down the street from where they lived. Built a 2 story mansion. Moved in and closed off the 2nd floor as they were in their 80’s. You just don’t know what drives people. Could be taste, could be location, could be habit or could be stashing a part of their portfolio in the largest tax-free situation they could find besides their RRIF’s. You just can’t stereotype.

  4. Mon Jan 16, 2016:

    Jan Jan
    2017 2016
    Net Unconditional Sales: 160 539
    New Listings: 317 934
    Active Listings: 1,465 2,471

    Please Note

    Left Column: stats so far this month
    Right Column: stats for the entire month from last year

  5. Vicbot:

    Thank you for the info on the Rockland flip. I doubt if they threw more than 200k into the house. outrageous profit.

  6. Looks like 1287 Rockland was a quick flip – sold for $799k in March 2016, and now the kitchen & bathrooms have been re-done. I guess this follows the same pattern as those places in OB jumping $700k in 1 year. Some wealthy retirees might want it because single level living is becoming popular so they can stay at home longer. It’s kind of a busy corner but as Michael said, you’d just have to turn your hearing aid off.

    Ash, you raise a good point about foreign sellers not selling at the same rate as locals if they’re just parking money for safety – we saw that in Vancouver in the early stages of the price jumps – in the 2000s, but in the last few years with fast flipping & trading houses, it changed, so you never know.

    Also you’ve also got retirees living at home much longer, and millenials starting families – all of which affect inventory. I agree, we need to keep an eye on the foreign buyer stats – it’s obvious that Toronto has jumped as a direct result of Vancouver’s new tax.

  7. I did a quick look through Oak Bay and I suspect there are better deals in Oak Bay for a similar house.
    Any thoughts?

  8. Gordon Head used to have Vantreight farms which gradually gave way to new builds in the 80’s. (ie my reference below).. you know, those daffodil farms…

  9. My wife just pointed out that the price for the Rockland house is no crazier than what they have been getting for a similar house in Oak Bay. I bought up the street for virtually that price three years ago, But my lot is 26,000 square feet with a 7000 square foot fully updated manor house with an additional 1000 square foot carriage house. How can prices go that crazy in just three years??

    I also think this house is a quick flip, does anyone know when it was bought last and for how much?

  10. I have to disagree on the Gordon Head.. Both my Lawyer and Dentist lived there in the 80’s and both drove corvettes, built custom houses and The Racquet Club was the place to be…I also happen to know an investment advisor from Uplands that bought a lot/teardown there 2 years ago and is building a mini mansion…

  11. 1287 Rockland just came on the market for the insane price of $1,588,000. 9600 square foot lot with a old 1957 house of 2000 sq ft. that borders on a knockdown. This cannot possiblely be a realistic asking price.

  12. Leo:

    You are right that both out of town buyers from Toronto and foreign buyers can distort the local market. But I am not sure exactly what your point is here. The problem of distortion would certainly be reduced by removing foreign buyers.

    Citizenship comes with certain privileges including freedom of movement. It also comes with duties and obligations (including extreme duties such as conscription). Would it totally solve the housing issues, of coarse not but it would improve the situation and it would provide more safeguards for the next generation.

    Just to be clear, when I say citizens I do include landed immigrants. People on temporary visas including temporary student and work visas would be excluded.

    While we are at it we should consider taxing citizens and landed immigrants on their world wide income just the US does.

  13. It is all foreign buyers that are the problem.

    There is no difference economically between a foreign buyer and a buyer from Toronto or Vancouver or Saskatoon. Both, if present in sufficient numbers, will distort the market for locals and drive it to be unaffordable

  14. But the observable difference in population from last year to this year is quite noticeable

    The human mind is absolutely terribly at statistics. That’s like when you buy a car and start noticing them everywhere.
    The statistics are a lot more reliable than anyone’s observations comparing to a year ago.

    As the numbers collected by the government are not reliable

    The new ones are that the province is collecting. That’s not the same as the buyer origin data from the VREB which is not reliable

  15. Um, because properties in the core appreciate a lot more than properties in the West Shore — and probably will forever.

    Life is about more than money

  16. There’s now data on foreign purchasers, and for Victoria the numbers don’t really worry me. But is govt collecting data on foreign sellers? If foreigners represent ~4% of buyers but a smaller percentage of sellers then I guess it gets to be a problem with time?

  17. I think a lot of families aren’t willing to take on a series of reno projects with young kids at home. And many that do quickly regret it!

  18. Not everything is about equity and profit. I spent the last three years fixing one thing after another. Generally put in a thirty to forty hour week on the house. But I do it because i really love the house and get a lot of joy working with my hands. By the way, i would not hire me since it takes forever for me to get things just right.

  19. Docs generally are caught up with the prestige thing – if most of their colleagues are living in the core, that’s where they will live even if it costs them more.

    As for Gordon Head and Henderson are concerned, those were really middle class areas when I was growing up in the 80’s. They were the sort of places where two teacher families lived, your typical government policy analyst, govt middle manager or assistant professor. White collar middle class country but nothing more. Not really the places where the doctor, rich businessperson or old money heir lived.

    But things are different now with homes in those places going for outrageous amounts that are not affordable to the middle class unless they have a lot of real estate equity already.

    I hear of rich Chinese buying in both Gordon Head and Henderson.

  20. I just like how Hawk ignored those 2 OB sales, 1.7M & 1.5M. Both sold over asking and updated assessment value.

    Ash
    Friends of mine live in that part of Henderson. They make very typical middle class wages (maybe 130k household). It was a move up purchase for them a few years ago (~800k) and they put in some sweat equity etc. Now I guess this otherwise middle class family has a ~1.5M home. Very unlikely we’ll see middle class folks be able to make this sort of jump now.

    Hats off to your friends!
    How many couples willing to spend $800k for a fixer upper few years ago? Most people are too lazy to get their hands dirty, especially with 750k+ budget and 100k+ income. Your friends stick to location x3 and their hard works paid off.

    The owner of 3158 Wessex was a friend of mine. I showed it to a few young couples before it went on market. They could have it for $600k couple years ago, and the market was heating up already. “Too much work” “Too old” “Doesn’t fit our lifestyle”….. it sold for $650k iirc. It was re listed last Nov for $1.2m after a new floor and paint job.

  21. Personally I think the problem of foreign buyers has nothing to do with country of origin . If we had flood of Americans, Germans or Greeks buying here the problem is identical. It is all foreign buyers that are the problem. They are reducing supply and forcing prices up past the point where native Canadians can afford to buy. At the very least we should prohibit the ownership of residential and agriculture land by foreigners.

  22. Jim Dandy,
    I tend to agree with you. I find the fact that most people seem to ignore the change and not consider the consequences of an increase in foreign home purchasing can have in the small city like Victoria. The rascist card is an old one played in Vancouver that shut people up for years. Unfortunately it’s in the hands of the BC liberals to do something. If there isn’t something in it for them, I can’t see any action.
    AG,
    I am suprised you haven’t noticed the increase in ultra luxury cars with young adults driving them in the city. Or go to Costco and see that 10-20% of families shopping are speaking Mandrin. And I agree with Marko, there are many Chinese Canadians that speak Mandrin. But the observable difference in population from last year to this year is quite noticeable and I think shows a shift from buying in Vancouver to buying here in Victoria. As the numbers collected by the government are not reliable, I can not prove my point.
    I do recognize that the topic is very sensitive as it singles out a people group by talking about it. But it is an economic fact that there is a historical flight capital surge from mainland China right now that makes its way to foreign homes. It’s a fact and can bring huge changes to a community, mainly grossly inflated house prices. Observe Vancouver. I think people need to educate themselves regarding the current economics in China right now before calling out ‘rascims’. Unless of coarse, someone is indeed slamming a specific race, or a specific person because they are part of a race. It’s complicated, but so is any housing crisis.
    (Sent from my iPhone. Please ignore any grammatical or spelling errors. Cough. Introvert. Cough)

  23. Why would you throw away an extra few hundred thousand to live in the core and drive out to the west shore every day?

    Um, because properties in the core appreciate a lot more than properties in the West Shore — and probably will forever.

  24. There will be 7,000 people living in Royal Bay alone….that’s like 14-15 doctors alone to service that population. Those 14-15 won’t be living in Royal Bay, quite a few of them will want to be in the core.

    Why? The only reason the west shore is less desirable is because of the commute. If you work in the west shore it makes perfect sense to live there. Why would you throw away an extra few hundred thousand to live in the core and drive out to the west shore every day?

  25. “I’ve seen very little in the way of Chinese buyers in South Oak Bay.”

    So I guess you are an agent AG to know who every buyer is and where from ?

  26. One reason why Vancouver got out of control was ill informed people crying ‘racist’ when it was simple economics.

    However, I don’t see any sign of excessive Chinese buying happening here yet.

  27. “Is this an area that is likely to remain hot? What are some opinions of this area? ”

    I know a few people that live in this area, eg., tech exec & gov’t managers. It’s also very popular with students, local & foreign, so you get a lot of basement suites. There are some nice new builds, “executive style” homes, and ocean views especially around Gordon Head Drive. There are also 70s boxes, but they have large rooms, and retirees like them if they don’t want to climb stairs to their bedroom, eg., one couple reno’d theirs so it has a great modern-looking entrance. It’ll probably stay popular because it’s close to the university and ocean, but it’s a bit longer drive to the rest of Victoria’s businesses & shopping.

  28. Marco, thanks for pointing that out. My point here is that the prospective buyers at the open house were conversing in Mandarin which leads one to believe they are not from around here. Yes you could also point out that many Canadians also speak Mandarin, and try to further call me out as some sort of ignorant racist.

    However, It seems unanimous that Vancouver hit a crisis point in housing prices and foreign buyers played a role in that. I would hate to see the same thing happen over here. Look at Richmond, there are some streets where you can not find a sign in English. It’s easy to pass my concern off as racist but this is a real problem affecting local buyers. I personally believe something needs to be done before it’s too late.

  29. Birds of a feather flock together as they say. Living near the university you can see a lot of Chinese heritage here vs my previous haunt VicWest. My guess is it simply evolved because of the university. We have such a strong Chinese link here how could one distinguish between a Canadian and a Chinese person anyway?

  30. They said it was packed and almost every other one of the visitors was Chinese. No doubt another bidding war and likely a few number 8’s in the winning bid. Let’s get that foreign buyer tax over here pronto. Anyone else agree?

    There is a difference between being Chinese and a foreign buyer.

  31. When we were looking at houses in early 2016 there was def more of a noteworthy presence of Chinese buyers in Gordon Head or areas near Uvic. Gordon head is desirable, with nice beaches nearby and Uvic. But there’s lots of dated 70’s box like homes. If you ask me the area lacks character, plus it is quite far from downtown. Your relatives may be well advised to expand their horizons to adjacent areas. ESP given the incredible lack of inventory right now. As for weather it’s overpriced? That’s anyone’s guess. It may not be given the lack of supply and continuing demand fundamentals in the Victoria market. Plus the fact SFH prices in the core became detached from local incomes long ago.

  32. My in-laws are very keenly looking into real estate in Gordon Head right now. They like the proximity to UVIC and the ocean. But their search has been frustrating for them so far. Is this an area that is likely to remain hot? What are some opinions of this area? Overpriced? Still room for pricing to move upwards? Should they be looking elsewhere?

  33. Gordon head was always popular w Chinese. The foreign tax may not help as many are already permanent residents or citizens. The Chinese will continue to find ways to get their money into desirable western cities despite the latest crackdowns on capital outflows by China. However. I do agree the foreign tax came in too late in Vancouver and it should’ve just been implemented BC wide.

  34. Luke,

    I agree it’s interesting that Toronto takes specific note of the Victoria market with all the madness of their own they have going on over there.

    In other news, a family member went to an open house on Merida Place in Gordon Head this afternoon (priced below assessment). They said it was packed and almost every other one of the visitors was Chinese. No doubt another bidding war and likely a few number 8’s in the winning bid. Let’s get that foreign buyer tax over here pronto. Anyone else agree?

  35. The problem is the beauracy the municipalities put you through with such moves/renovation at new location. Most of the time the homes you see moved there is a re-zoning involved and the city has leverage (i.e., you move this house and we will give you additional density). Most often it does not make economic sense to move an old house.

  36. I hope that if the new owner of the Lansdowne house doesn’t want to reno it, that they call Nickel Bros to recycle the house and have it moved somewhere where it’s wanted. It’s 2100 sq ft on 1 floor with coved ceilings, large rooms, and nice 50s single-level-living period features – they were “built like tanks” and there’s too much unnecessary destruction & unnecessary waste/pollution with taking down these larger older homes.

  37. 2750 Landsdowne Rd. Listed at $1.495 sold for $1.703 – must have been a bidding war. Very similar to Woodburn which also sold well over asking – the Landsdowne house is just barely in Uplands. Is this an indication of what’s to come this year? Such an extreme lack of inventory out there and still loaded buyers? Both Woodburn and Landsdowne were total ‘fixer uppers’ and they look like homes formerly occupied by now ‘dearly departed’. My question is – is the Woodburn lot sub dividable? Or is it just b/c they’re big lots in desirable areas?

    This article from the Toronto Star states Victoria will keep going up while Vancouver corrects somewhat. Not often we see articles in Toronto’s paper about Victoria.

    https://www.thestar.com/business/2017/01/10/victoria-real-estate-prices-to-continue-rising-amid-property-shortage.html

  38. Hawk:
    to prove that you are not always negative, what do you consider a well made buy in the Victoria market.?
    What are the good areas to look at.

  39. The Hawkbot strikes again…
    “Anyone buying XXXXX needs their head examined”

    Often seen with:
    “XXXXX will be the first area to tank”

    🙂

  40. Hawk:

    Last time I looked Trump was fine with the terms of the original auto pact. We would be better off with it as well.

  41. Anyone buying that Westshore crap needs their head examined. Shit construction as they cheap out on lumber with staircases that bounce like a trampoline and bizarre layouts makes for future ghettos. Once Trump implements his end game plan the Canadian economy will not be in a great spot. Trade tariffs of high percentages will kill the consumer.

    Trump’s team suggests Canada could get hit with the same auto border tax as Mexico

    http://www.theprovince.com/trump+team+suggests+canada+could+with+same+auto+border+mexico/12702635/story.html

  42. Well, my friends on Henderson sold their place for a small fortune to a student from China… Crazy that the stereotype is alive and well…

  43. I can see the influence of 2%/1% income earners, but when you see houses jump $700k in 1 year, something more is going on.

    Just like doctors stopped being able to afford housing in Vancouver, this is another example of how real estate has become more national and global, where local incomes aren’t a driving factor in the sharp increases.

  44. I don’t see Royal Bay as being more upscale than Happy Valley. The lots are just as tiny and the houses are the same basically. Well maybe less crappy I guess. Anyway small houses on small lots which was surprising.

    Maybe you mean the original Royal Bay development because I agree that area is pretty good.

  45. Marko:

    You are absolutely right the core will see an increasingly higher strata of income earner as the population grows. This is a point of common sense that people overlook. Glad you made it so clear.

  46. Friends of mine live in that part of Henderson. They make very typical middle class wages (maybe 130k household). It was a move up purchase for them a few years ago (~800k) and they put in some sweat equity etc. Now I guess this otherwise middle class family has a ~1.5M home. Very unlikely we’ll see middle class folks be able to make this sort of jump now.

    Middle class will be jumping Happy Valley to Royal Bay.

    As the population grows irrelevant of what the market does for the most part (up or down) to afford in Henderson or Uplands you’ll need to go higher and higher in terms of being a top earner.

    What I mean by this is if in the past on average you needed to be in the top 10% in terms of income in the future you’ll need to be in the top 2%. Supply is fixed, absolute number of 2%ers grows as the population grows. There will be 7,000 people living in Royal Bay alone….that’s like 14-15 doctors alone to service that population. Those 14-15 won’t be living in Royal Bay, quite a few of them will want to be in the core.

  47. gwac, you need to watch the margin credit. If Trump keeps up this daily lunacy the margin and credit markets will tank.

  48. 202 Dennison on top of Gonzales hill in Oak Bay was on the market in 2016 for $2.338 million. Came off market for a while and just sold for $2.759 even though was not re-listed.

  49. It will be interesting to see this weeks numbers for sales and listings. For what little it is worth, I have noticed that the number of properties in Uplands has dropped from seven down to five. There is a little more inventory in South Victoria of SFH but not a whole lot. James Bay has added one, Fairfield about two, Oak Bay maybe a couple more and Rockland none. Still it is a bit early but this is the time of year you expect listings to come on the market.

    Personally I am surprised at the prices that henderson is now fetching. I know that everyone says that the number of out of town buyers are only about ten per cent but I would really like to see some stats on buyers paying over 1.3 million.

    Frankly, i still believe that house prices are a bargain compered to Toronto and even Vancouver in spite of the price drops. As as a side note, we should all thank the Victoria Tourist board for promoting the city as the greatest place to be in Canada. I was up in Sidney on saturday and the prices up there are almost matching Victoria.

  50. Friends of mine live in that part of Henderson. They make very typical middle class wages (maybe 130k household). It was a move up purchase for them a few years ago (~800k) and they put in some sweat equity etc. Now I guess this otherwise middle class family has a ~1.5M home. Very unlikely we’ll see middle class folks be able to make this sort of jump now.

  51. @Caveat
    Same can be said for much of the interior i.e. the market strength. I would think it’s very unusual to see the island and interior go up while Van corrects, but here we are.

  52. Up at Mount Washington this weekend. A lot less “for sale ” signs than the last few years. Quite a few sold signs. Assessments generally up this year 10+ percent. A lot of optimism around the resort with new owners and now a second decent year after two terrible years in a row.

    Comox Valley friends mentioned that the market has heated up there in the last year. Inventory fallen, multiple offers. I guess the madness is spreading up Island.

  53. If one wished to get a family doctor, how is that done?

    Jerry – get friends to ask their doctor on your behalf. We did that for friends and it worked. I think doctors are more likely to accept requests that way (i.e referrals from low maintenance, non-psycho patients) versus folks walking in off the street. The letter approach suggested earlier wouldn’t hurt. Finally if you have any friends or friends of friends who are doctors ask them for ideas as occasionally there are doctors taking in a few patients here and there without publicly advertising.

    It is a concern for sure. Walk in is fine for routine stuff, but having a decent family doc is great if anything complex comes up.

  54. What’s surprising about Woodburn is how prices have skyrocketed in that area in a little over 1 year and people’s incomes have not, including high income earners.

    eg., 3231 Woodburn (similar house) sold for $899k in Oct 2015, or 3111 Woodburn sold for $640k Oct 2014, or 3114 Woodburn (larger house) priced at $775k in 2012/2013.

  55. Leo”

    I know hat you mean. my dad bought over 400 acres of farmland north of what was then Streetsville, right after WWII. Even in the good years the farms barely turned a profit. He sold it in the early 80’s.
    At that point it was Mississauga. The world changes.

  56. As you all know. I remain extremely bullish but I still shake my head at 1.55m for a lot there . Probably 1.7 or 1.8 before the new house is even started. Market seems to be recouping 7 years of nothing in 1 year.

  57. I remember my parents looking at buying a condo for us to live in while we went to UVic. They decided not to since the prices at over $100,000 seemed ludicrous.

    A leaky box in the sky for a third more than they had spent on 160 acres? Not bloody likely

  58. @ Vicbot:

    “I also discovered that it helps to say you’re relatively healthy (to hint that you won’t take up too much time)”

    I guess they don’t mind you bringing them business, but they like to be able to move people through briskly. So yes, if you can make it clear that you are a business-like person, that must be a plus.

  59. Henderson is an upper middle class area but pretty bland for a higher income place. Some streets are pretty upscale like University Woods. It is close to the Uvic but it is far from the ocean and not particularly close to Downtown.

    Nice enough but it doesn’t have the history of Rockland, the charm of South Oak Bay, the posh grandeur of Uplands or the beauty of Ten Mile Point.

  60. That location has not been middle class since I cared about the market. I also remember my dad marvelling at the cost of tear downs in Oak Bay…In the 90,s!

  61. A middle class family once was able to buy beachfront in Malibu. The world changes and cities grow. That is not exactly new.

  62. @ Deb, I don’t own a million dollar home or a suite. I’m not even building a suite in the house I’m building…. I own a rental house that I fully. expect to pay capital gains on….

  63. Point taken but a 1.6m tear down. :). A middle class family once upon a time could have afforded this place.

  64. Not to long ago this was a starter home for a middle class family

    A 2200sqft place on a half acre in Oak Bay backing onto the uplands golf course was never a starter home.

  65. “sensible, literate, people who write a polite letter requesting to be taken as patients.”

    CS, adding to your point, I also discovered that it helps to say you’re relatively healthy (to hint that you won’t take up too much time)

  66. “If one wished to get a family doctor, how is that done? ”

    It might be worth writing a letter to a doctor that you would like as your family physician. Although, apparently, no doctors currently admit to taking new patients, some, I suspect, will accept new patients of the kind that they like to deal with, e.g., sensible, literate, people who write a polite letter requesting to be taken as patients.

    Whether that would work now, I’m not sure, but it has worked for me in the past.

  67. @gwac:

    3191 Woodburn. 1.55m. Is that not crazy? …

    Not to long ago this was a starter home for a middle class family.

    Now it’s a tear-down and a place for some addle-headed heart surgeon or hyperactive dentist to build a six or eight thousand square foot home to be featured in the Beautiful Homes section of the Times Colon.

    Well, what else you gonna do to leave a mark upon this earth while upon your journey to the grave?

  68. Jerry, yes it’s very hard to find a family doctor. The only reason we have one is because he’s been my parents’ doctor for many years. Apparently this is a crisis in BC in general.
    http://www.cbc.ca/news/canada/british-columbia/frustration-growing-over-shortage-of-doctors-in-b-c-1.3639532

    The only issue with clinics is that the doctor changes every time you go, so they don’t track your history, and you need that kind of analysis to get proper treatment long-term, especially as you get older. It puts more of the onus on you to understand all your records.

    Gwac, funny we were saying exactly the same thing last night – 700k a few years ago.

  69. 3191 Woodburn. 1.55m. Is that not crazy? Or are we all amune to this now. Was this not a 700k a couple years ago?

    Not to long ago this was a starter home for a middle class family. This is crazy what is going on.

  70. how many folks here have a family doctor? We have only lived here six months and do not know if this is a goal to be pursued with any chance of success or if most of you just toddle off to one of the clinics as and when required.

    We have one. He’s over 80 so likely we won’t have one for long. He’s tried to sell his practice but there is no interest. That said we go to the clinics 80% of the time anyway. Easier.

    If one wished to get a family doctor, how is that done? Is there a master registry or waitlist somewhere or would one need to trot around to the various and sundry doctors to be waitlisted?

    I was going to point you to this site http://www.victoriamedicalsociety.org/gp-listings/

    But then I noticed it says No Doctors Currently Accepting New Patients

    This site also exists but shows no results https://www.cpsbc.ca/physician_search

  71. As an alternative to the CG discussion, can I ask how many folks here have a family doctor? We have only lived here six months and do not know if this is a goal to be pursued with any chance of success or if most of you just toddle off to one of the clinics as and when required. If one wished to get a family doctor, how is that done? Is there a master registry or waitlist somewhere or would one need to trot around to the various and sundry doctors to be waitlisted?

  72. Marko:

    If you hand over the whole basement to tenants then I believe that you do lose the principal residence allowance for that portion. As a matter of policy the CRS wont enforce if you are just renting out a single room. But there is nothing in the income tax act that actually automatically excludes it.

    Where is the exact line; sometimes it is hard to tell. But, since the owner is the one claiming an exemption the legal onus falls upon you to prove that you fit the exemption. Arguing that the CRS does not aggressively try to collect it does not mean that you dont owe it. Everyone is presumed to know the law; with the possible exception of judges since they have the Court of Appeal to tell them what the actual law is. If you look you will find tax cases on boarding houses.

  73. Also regarding assessments. Our square footage was incorrect so I called them and sent them the floor plans from when we bought the place. They reduced the assessment from $778k to $750k. Still seems a bit high relative to identical houses on our street but I’ll leave it for this year. Not worth the hassle of appeal to knock another $20k off the value.

    So if your assessment is in error, then call BCA first. They were extremely friendly and helpful in getting it corrected.

  74. And there are a ton of practical measurement issues such as furnace/hot water tank servicing the entire home right in the middle of the suite, is it based on finished square footage portion of home or overall square footage of home (including garage), differences in measurement technics, etc., etc.

    I think you are getting lost in the details here. You’re talking +- 10% here at most. I’m sure you can use the most favourable split that is reasonable as long as you can defend it in an audit. Our suite entrance is through the laundry room but the laundry is shared. So is the laundry room part of the suite? Or half of it? This stuff doesn’t move the needle.

  75. It’s not so cut and dry as evidenced by the decades of this tax not being paid. Plus, if the landlord is lawful, they are paying tax on the income.

    I won’t be renting this year and won’t be paying income taxes and while individuals on Reddit share stories of not being able to find accommodation in Victoria my near new suite will be used as a media room. Consequences of the potential CGs tax.

    I would love for a media story to break on this showing a vacant suite somewhere in the core as a result. It would be interesting politically.

  76. CRA is already involved in this kind of calculation. If anyone has a home office, you already need to calculate the square footage as a proportion of the house to get the deductions. I’m not sure if they use finished or unfinished space. Bu either way, they rely on people being truthful and then occasionally they might come out and check it.

    There is a huge difference between noting you use 20 or 30% of your home for business versus selling your home after 20 years for $1,500,000 after having purchased for $500,000 and calculating size of suite for purposes of CGs. I can’t see the suite is approximately “25%” flying when we are talking hundreds of thousands in taxes.

    BC Assessments is not very accurate and a lot of homes don’t dedicate the entire basement to the suite.

    If they start enforcing this tax there will be all sorts of shady crap going on such as people turning two bedroom suites into one bedroom suites, etc. There is already no paperwork for the majority of suites going in and there won’t be any paperwork for modification done to substantially decrease square footage.

  77. “I am still waiting for someone to enlighten me on how the “rental portion” is to be measured out.”

    CRA is already involved in this kind of calculation. If anyone has a home office, you already need to calculate the square footage as a proportion of the house to get the deductions. I’m not sure if they use finished or unfinished space. Bu either way, they rely on people being truthful and then occasionally they might come out and check it.

  78. CRA would easily find square footage by going to BC Assessment and looking at “1st Floor Square Area”, “2nd Floor Area”, “Basement Finish Area”, and they could probably cross check it against the sales documents for your property if they wanted to.

    The “Finish Area” doesn’t include the garage, furnace, or hot water tank.

    If you’re at the stage with the CRA where you’re arguing about a furnace or hot water tank, then you’re in an audit situation – in that scenario, I wouldn’t want to be playing around with numbers.

  79. It’s not so cut and dry as evidenced by the decades of this tax not being paid. Plus, if the landlord is lawful, they are paying tax on the income. There are enough taxes on homes. From the GST to PTT. If we’re talking about being fair I would more support a simple structure of a capital gains tax on principal residence no matter what the use. First million is free after that the capital gains kick in. Much more clear than a tax that MAY apply to an ESTIMATED portion of your property IF you do certain things with it. What about all you people who write off home offices. You definitely should pay CG on that portion you wrote off!

  80. If I ran H&R Block I would put that disclaimer up as well….if you are off it is not like anyone is going to be pissed off.

    I am still waiting for someone to enlighten me on how the “rental portion” is to be measured out. It’s not like you or the CRA can go down to the muncipality and find the suite square footage given that Saanich has 9,000 suites and 100 have a permit in place, for example.

    And there are a ton of practical measurement issues such as furnace/hot water tank servicing the entire home right in the middle of the suite, is it based on finished square footage portion of home or overall square footage of home (including garage), differences in measurement technics, etc., etc.

  81. Here’s some info that H&R Block posted to their web site (PRE/CGs are noted in last sentence) :
    http://taxtalk.hrblock.ca/how-to-file-credits-deductions/general-tax/so-you-have-become-a-landlord-now-what/

    Q: “I am looking at possibly renting out the basement of my home. There is a bathroom but no kitchen facilities. I have been told it is not taxable income because of that …”

    A: “The facilities available in a rental do not determine whether or not the income is taxable. If you are charging fair market value for the space you are renting in your home, you should report the income. You can determine fair market value by looking at other comparable rentals in your area or discussing your space with a local real estate agent. The percentage of expenses you can claim depends on the square footage of the basement compared to the rest of the house. If your house is 2,000 square feet and the basement is 1,000 square feet, then you can claim 50% of expenses. You will lose the principal residence capital gains exemption on the rental portion of your house for the years it is rented out.”

  82. If you a renting a basement apartment you have turned exclusive use of that area over to someone else in exchange for money.

    My understanding is, correct me if I am wrong, is that if you have multiple bedrooms in your basement, but no kitchen (not a suite), that you rent out you are not subject to CGs and that is pretty clear cut.

    Your statement applies to this scenario as well….you are making money of an exclusive use of an area in your house, just doesn’t happen to have a kitchen.

  83. As to Marko’s point about flipping mansions, the new reporting may also allow the CRA to crack down on those serial flippers if they determine they are actually running a business and not just moving frequently

  84. Caveat Emptor:

    Actually, I know someone in Toronto that was exactly in that position. he got a great deal on a duplex.
    He opened up the wall between both units on both floors and actually used the house as a single residence. being a very law abiding sort of fellow he also got permits for the work and actually hired a contractor that charged and paid taxes. He got the full principal residence deduction.because he actually used it as a principal residence.

    Frankly,I am tired of tax cheats who are speculators that try to convince others that storing a “bottle top collection” somehow makes the duplex they are flipping into a principal residence. The time is long overdue for the CRS to start cracking down on landlords who abuse this exemption.

    This is not rocket science. If you a renting a basement apartment you have turned exclusive use of that area over to someone else in exchange for money. try telling the Landlord and Tenant people that it is not an apartment.

    The whole argument as to structural changes with an outside door goes to whether you have a separate apartment that is not part of your principal residence whether or not you have actually rented it. Once you have rented it then it is obviously not part of your principal residence because you have turned over exclusive use to some other person or family.

    In my mind it is only fair to treat all landlords the same but that is a policy debate. As the law stands at the moment I believe that capital gains are due on any self contained apartments. If your accountant is advising you otherwise I strongly suggest that you got their opinion and writing.

  85. Barrister you are dead on. Fact is when you are buying a house with a suit you are buying an investment and it doesn’t make sense that the owner of a legal duplex is treated differently than someone flying under the radar with an up/down duplex (aka suite).

    They are in fact treated differently.

    Try this thought experiment:

    1)Individual A buys both units of an up/down strata titled duplex. Lives there. Owns them for a while then sells both units. There is NO way he is getting principal residence exemption on both units when he sells. Even if he never rented the second unit and spread his stuff between both units, stored his bottlecap collection in one unit, or left one unit empty. CRA will grant him at most one P.R.E.

    2) Same individual buys a a house with a basement suite (separate entrance, kitchen, bath) that occupies a portion of the basement and also can connect with the rest of the house (interior door to unsuited part of basement. Never rents it. Sells house. Claims PRE on the full house. CRA does not bat an eye.

    One “duplex” not like the other. First case there is now way to get PRE on the entire structure (two units). Second case the PRE is there on the entire structure unless you lose it.

  86. Marco and Oops, thanks for the input.

    I think at the end of the day, we all watched Vancouver go on a tear, and Victoria followed suit, followed by the rest of the island. Now we’re watching Vancouver stumble and falter, and if inventory piles up and sales continue to be slow, it could very well tumble a lot farther, along with prices especially as we’re now hitting the 6 month mark when that trend really begins to show.

    At this point it’s anyone’s guess but the next few months will be interesting to watch. And with China clamping down on cash outflow and the new mortgage rules starting to affect buyers, I believe we’ll see prices correct more significantly in Vancouver in the spring market (for SFH).

    And like a reverse wave, I personally expect Victoria to follow Vancouver’s lead, although many months behind. However, no one has a crystal ball, so it will be interesting to watch how it all plays out.

  87. wow, all that positive chatter about Oaklands was still not enough to draw JJ back from the sidelines. Now I’m starting to worry about the guy.

    @Barrister. The Henderson one is: 3191 Woodburn Ave. Listed 1.288M, sold for 1.55M. Looks like a lot of $ for a place that needs updating, but I really don’t track that area.

  88. Two home sales today in Oak Bay, one in henderson and one in Uplands; both sold a couple of hundred thousand above asking. Since i posted earlier that nothing seemed to be selling, I thought in fairness I should update this.

  89. Hi Michael,

    The website http://www.myrealtycheck.ca/ is fun to play with. Go to West Vancouver. When I last checked price drops averaged $370,894. Apparently, the price drop is even more significant. I guess more price changes came in.

    24 West Vancouver Price Changes for January, 2017.

    Average Change: -8.50% Up:3 Down:21
    Overall $ Change: -10848000.00 Average Change Amount:-452000.00

  90. “24% on detached homes and 10% overall is not an end of the world scenario.

    We are just in a bit of a gully right now, that’s all. Just a gully. (The Big Short)

  91. Vancouver had an average price drop of $370,894 for January.

    Curious where you’re getting the January price?
    Maybe I’m seeing things, but isn’t the average up over 200k last couple months?

  92. Real-world experience of local property owners tells us they aren’t due, with local accountants confirming it.

    They started collecting the information just this year. Real world experience from before doesn’t necessarily apply when things are being changed. That would be the reason we are having this discussion.

    As for local accountants, CuriousCat is one and disagrees based on currently available evidence.

    Even if the CRA doesn’t prioritize enforcement of this, I I wouldn’t personally make an investment whose profit hinges on whether the CRA will continue to turn a blind eye.

  93. The court case discussed back in the fall dealt with this situation where the owner did not put in the suite but it was already there.

    That’s nice, but CRA has never pursued it with respect to people in Victoria.

    Either they’re due or they aren’t.

    Real-world experience of local property owners tells us they aren’t due, with local accountants confirming it.

  94. Interesting Leo, edit wouldn’t work for me. No problem. I just wanted to add that West Vancouver had an average price drop of $370,894 for January.

  95. Marko Juras

    “It’s like prices are down 5% since the foregin tax was introduced.”

    Marko, you may be right but the Global News broadcast yesterday suggests otherwise. A representative of Royal LePage was on the newshour predicting an 8.5% drop in home prices this year …. on top of the 15% drop already in place.

    Now, I trust a Realtor about as much as the next guy but too many people trust the news hour reporting. Bidding wars and huge over asking sales were common place on the news in the past and that news pushed people into homes before they were priced out. lol.

    If I was interested in buying today, I certainly wouldn’t be jumping into the market when the “professionals” are saying that prices are going to drop further.

    Take a look at this website to see the direction of this market. In Vancouver, in January so far, there have been 76 price changes …. 60 of those are down for an average drop of $67,000. North Van and West Van are similar. http://www.myrealtycheck.ca/. Oh, by the way, this has been happening for the last several months.

    If technical analysis was reflective of the market then we wouldn’t be seeing these changes because the market would have limited supply and MOI is not really favouring buyers to any extreme. It would appear that fundamentals mean as much to the market when it’s going down as when it was going up.

    Sellers market ……. higher prices. Nope, not this time. It is a sea of red.

  96. “Detached sales fall 24% below 10 year average”. That’s a significant jump over the 10% you quoted.

    Context is extremely important. The last 10 years in Vancouver have been insane. 24% on detached homes and 10% overall is not an end of the world scenario. If sales were down 50% that would be more serious in my opinion.

    It’s like prices are down 5% since the foregin tax was introduced. Yes they are. Your $2,000,000 teardown skyrocketed 22% from Janaury 1st, 2016 to $2,440,000 before the tax and now it has dropped to $2,318,000………….it will take all of 2017 being extremely slow just to get back to Jan 1st, 2016.

    Take a look at the December 23rd, 2016 post on this blog. I am predicting a 24.6% drop in sales in Victoria for 2017. I am not predicting a doom or a buyers’ market, just a 24.6% drop taken in context of what happened last year.

  97. Andy7
    Vancouver SFH went from buyer’s market to seller’s market. Same story with Van Eastside, West Van and South Surrey.

    If I’m wrong here, by all means correct me with your stats.

    Nope, your stats are dead on. I think that your summary was just a little confusing but I believe we all know what you are saying. The whole Mainland has gone from a hot seller’s market to a buyer’s market over the last several months.

    The big problem for sellers now is the media which recently ran a story on an expected 8.5% drop in home prices (Royal LePage on Global News) on top of the already 15% drop experienced.

    I believe that most every buyer would have to sit back and say “yea, I can wait, why buy now?”

    It will be a very interesting Spring market. Andy7, you can watch the trending market conditions, reflected in price changes on http://www.myrealtycheck.ca/.

  98. 2.59 b) “structural change” is only talking about the change in use of an existing owner so it is not even relevant discussing it if the current owner just bought the property, as is, with a suite.

    According to this: http://www.allaboutestates.ca/principal-residence-duplex-or-intergenerational-house/

    you can’t even claim principal res exemption on a duplex (a house with 2 self-contained suites) if aging family members live there. Guess what that means is you rent it?

    “Two duplex units are considered a single housing unit if they are so integrated that it is impossible to normally live in one unit without having access to the other one and its installations. The two units would not constitute a single housing unit if each unit could be inhabited without major renovation or access to the other one (e.g, if each unit had a kitchen and bathroom, and a separate exterior access). The existence of separate ownership titles, separate civic addresses, separate entrance doors, and separate public service accounts would also be considered to determine the existence of a single housing unit.”

  99. Marko Juras – you wrote “Cherry picking…..Vancouver sales in December were only down about 10% compared to 10 year average (it has been a fairly hot 10 years)”.

    Marko, no offense, but what are you talking about? We’re talking detached here not condos/townhomes. “Detached sales fall 24% below 10 year average”. That’s a significant jump over the 10% you quoted.

    “Detached sales fell year over year by 47% in Vancouver East, 52% in Vancouver West, 66% in Richmond, 59% in Burnaby, 52% in REBGV, 54% in FVREB (Fraser Valley). REBGV detached sales were 24% below the 10 year average, Fraser Valley fell 22% below the 10 year average”.

    Squamish went from a red hot seller’s market in SFH to a buyer’s market. Vancouver SFH went from buyer’s market to seller’s market. Same story with Van Eastside, West Van and South Surrey.

    If I’m wrong here, by all means correct me with your stats.

  100. This is your interpretation. CRA either shares your interpretation but almost never enforces it, or CRA doesn’t share your interpretation

    It isn’t. The court case discussed back in the fall dealt with this situation where the owner did not put in the suite but it was already there.

    Think about the spirit of the regulation here. It would make zero sense that if you put in your suite, CGs are due, but if you buy a house with a suite they aren’t. Either they’re due or they aren’t. You putting in the suite or buying with a suite is not a factor here.

  101. Doesn’t matter. The point is that those changes were made to make it a suite. If the listing you purchased was advertised as having a suite then that just seals the deal. You bought it knowing that you were going to make money from a significant part of the property.

    This is your interpretation. CRA either shares your interpretation but almost never enforces it, or CRA doesn’t share your interpretation. All local tax accountants (that we’ve heard of) do not share your interpretation.

    The big change is the reporting which makes it easier for CRA to find out about abuse of the P.R.E. or to challenge folks on borderline cases.

    This is what it seems like to me.

  102. McGurk, agree it would be good to get some in-person advice about the new Schedule 3. Might want to ask LandlordBC (on Pembroke St) for a recommendation, or try Maycock & Co accounting firm.

  103. The map reminds me of a real treasure map for the CRS to mine with capital gains. The political screaming is limited by the fact that it is only triggerred when a house is sold. But a nice stream of steady revenue for the Fed without politicians having to get their hands dirty by passing any new laws. What is there not to love in Ottawa.

  104. Does this map look about right? https://censusmapper.ca/maps/519#12/48.4615/-123.3864

    General patterns look somewhat correct in the core. I am surprised by the high duplex percentage in some areas of the burbs. Do outlying parts of Saanich and Langford really have a comparable or higher duplex percentage than Fairfield or FernHood?

    5 out of 9 of my immediate neighbours in Fairfield have “duplex-ready” basements although only 3/9 are currently rented.

  105. Has everybody here watched “The Big Short” not only a really good movie but also maybe a bit of food for thought.

  106. Hawk:

    My point is that they were listed at these same high prices six months ago, the difference is that they were selling at those prices and now they are just sitting there.

  107. Further to my last. I did discuss my situation previously with my accountant and he didn’t think I was jeopardising my principal residence exemption. The rules haven’t actually changed I don’t think. The big change is the reporting which makes it easier for CRA to find out about abuse of the P.R.E. or to challenge folks on borderline cases.

  108. What the heck is a “structural change” anyway?

    Our basement/ground floor has a small suite. We haven’t rented it for some years as we have a caregiver living there. The suite has it’s own door which appears to be original to the house construction. There is another exterior door for the rest of the basement – also apparently original (though admittedly the house has had so many changes over the years it is hard to tell) . Regardless of intended use – who would build a 900 square foot ground floor/basement with only one door? So arguably the separate entrance is not a structural alteration.

    At some point in the house’s 106 year history someone added a small kitchen in the suite.

    Obviously I will discuss this with my accountant. But I am fairly confident that our on-again off-again rental of the partial basement would be considered “ancillary”. The CRA guidance doesn’t say no structural changes made ever that that made the property more useful for ancillary rental. Rather the guidance seems to suggest considering whether a structural change was made LEADING to or enabling the partial change in use.

  109. The question was more rhetorical about en masse renters…to me that means enough to significantly skew the origin of buyer stats. Vicbot -I agree. Barrister – I agree too but this would not be “en masse”.

  110. “Uplands seems to have extremely slow for a few months now.

    Most places are listed at 60% to 140% more than they were a few years ago.”

    According to Mike most Victorians have had annual 7% to 13% wage increases during the same time so affordability shouldn’t be a problem. 😉

  111. ReasonFirst:

    If you sold your house in Vancouver for 4 mil. and you are looking to buy in Victoria for 1.5 million, renting is really not a problem. Finding a nice furnished condo for 3k a month is not exactly a challenge.
    It just becomes a cost of moving.

  112. “How are people from Vancouver going to rent here en masse before buying when the vacancy rate is so low?”

    People from Vancouver aren’t going to rent en masse – there’s just a difficulty in getting exact stats on people’s place of origin. There’s always been a mix of people arriving from other cities – some buy here before moving, some rent here first, some stay with family, etc.

    CuriousCat, with all the changes to Schedule 3 related to Principal Residence & Capital Gains, do you think that it caused some accountants to re-assess what they were telling clients about their suites?

    The reason I ask is because if CRA audits a taxpayer, it’s my understanding that the taxpayer is responsible for any “missing info” – especially if they sign an agreement with the accountant – they can’t argue “it’s the accountant’s fault” if they didn’t pay CGs owed (?)

  113. Dasmo,

    Makes some sense to disallow expenses on a suite. I wonder how the math on that would look but you are talking about changing the tax act. I took a course on the tax act many years ago – it was over 3,000 pages. CRA and simplicity do not exactly go together. CC may correct me but, unless our MPs have a particular policy in mind to encourage/discourage something, the act “tries” to makes things equalish (hence applying similar rules to rental suites as businesses). This, I think leads to a lot of the complexity.

  114. Exactly Leo S,

    The idea that you can avoid paying CG because there was already a suite in place is a bit laughable. You are basically buying a turnkey business and are treated equally.

  115. How are people from Vancouver going to rent here en masse before buying when the vacancy rate is so low?

  116. @ Leo,
    That more highlights my irritation with zoning than anything else. As I’ve said many times almost no houses in Fairfield are SF but the zoning still says it is even where the condo conversions are. Zone these properties as duplex and then I would be OK with CG on suites. As it sits I don’t think it makes sense to treat it the same as if you owned a duplex and rented half. As I said before, you can actually sell that asset, a suite you cant. (I don’t have a suite nor have I ever rented one). It’s way to difficult to figure out exactly what is owed. Just make it so you can’t claim expenses and be done with it.

  117. While there have been posts on here suggesting that there are a lot of anxious buyers out there, I am noticing that very little in the way of SFH are selling in South Victoria (Fairfield, Rockland, James Bay and Oak Bay). Uplands seems to have extremely slow for a few months now.

    I know that inventory is low but there seems to be slowing in sales in spite of that. I imagine the next few weeks will tell. I dont follow condo sales but maybe they are doing better.

  118. Does this map look about right? https://censusmapper.ca/maps/519#12/48.4615/-123.3864

    This is fascinating. Not the percentage, but the fact that the CRA calls them all duplexes. So the people hung up about examples with duplexes rather than suites, in the CRA’s eyes they are one and the same. Suites are just non-stratified duplexes. Which makes sense, since that is what they are.

  119. Most people don’t make structural changes to their home; they buy a home that has already been structurally changed

    Doesn’t matter. The point is that those changes were made to make it a suite. If the listing you purchased was advertised as having a suite then that just seals the deal. You bought it knowing that you were going to make money from a significant part of the property.

  120. If all the rich retirees are moving here en masse as Mike spouts off with all their massive US profits and Vancouver profits, then why do all these expensive shacks in the Uplands etc languish on the market and have to have their prices slashed by hundreds of thousands and still no takers ? Oh right, they’re “over priced” AKA “BS”. The ones moving here are looking for low priced deals because they aren’t that loaded.

  121. Too funny, guess you aren’t as rich as you think.

    Hutchyman
    ‏@Hutchyman
    #vanre friends of mine went to the bank with their new property assessments, and asked for extra lines of credit; they were shown the door.

  122. @Michael
    One word of caution – I believe those numbers are for in-migrants only, and as you noted, are inter-provincial numbers. It would be interesting to see if there has been a spike in ex-pats returning from the US. Statistics Canada should have that data.

  123. Part of the reason 2011/12/’13 was the above par loonie combined with lure of bottoming US prices. Now many are selling those US shacks for double their money after currency exchange.

    That’s a good point. I had quite a few clients pick up property in the US in 2011-2012.

  124. Shall be interesting to watch the effect the following has on Victoria…

    Cherry picking…..Vancouver sales in December were only down about 10% compared to 10 year average (it has been a fairly hot 10 years).

  125. Why weren’t the retirees coming and buying all the high moi houses in droves 2015 or before?

    Part of the reason 2011/12/’13 was the above par loonie combined with lure of bottoming US prices. Now many are selling those US shacks for double their money after currency exchange.

    For interest, here’s the last 5 years of the age 65+ interprovincial migrants to BC (compliments of Bman).

    2015/2016 5524
    2014/2015 5375
    2013/2014 4659
    2012/2013 3519
    2011/2012 3545

    https://househuntvictoria.ca/2016/12/12/dec-12-market-update/#comment-17320

  126. Shall be interesting to watch the effect the following has on Victoria…

    c/o Steve Saretsky
    “Only 2 detached sales this month in West Vancouver. China’s ban on capital outflows for real estate working? #VanRE”

    Detached east van sales – on pace to be about half of what they were in 2016

    South Surrey – 11 sales through 12 days. January 2016 had 151 sales

  127. As for reporting origin of buyer – I think a good chunk of the out-of-towners rent first. I live on a rental-heavy street and have met a number of them. Having said that, the Vancouverites who bought my rental had a local realtor scoping places and they just came over for the short-list.

  128. I just had Advantage Heating in and they replaced a sequencer on my electric furnace. I liked them. Guy’s name was Andrew.

  129. Accutemp. They installed my heat pump (integrated into my oil furnace) and fixed an issue with my furnace a couple years later. Turned out I needed a new circuit board.

  130. Anyone know a good furnace repair company that does heat pumps and gas furnace combos? Having issues with the furnace and Knowles gas/ miles plumbing can’t figure it out.

  131. In regards to vanvouverites cashing out and moving here… I guess some people probably made a lot of money in van housing but how many people do you really think were smart enough to cash out at the peak of the market? Kind of like Victoria right now (maybe?)…How many people do you know cashing out right now to retire in Duncan or Port whatever? Not many I suspect. Many would probably get a culture shock in the wrong direction and the shopping in the pawn shops isnt so bad…

  132. @Rook

    Do you guys think that would slow the migration down? Or do you think we can see an even more overwhelming number move across?

    Even if Van’s correction is not yet over, I doubt it would slow the migration (especially for retirees). Recall what happened when Toronto began to crash in 1989 with prices also roughly double Victoria at the time. Although everyone thought it would bring down the whole country, Victoria climbed another ~50% in the next 5 years from in-migration, while Toronto continued crashing.

  133. We sold our condo last May and have been searching for the appropriate SFH /w suite. Our initial requirements included a decent year and a decent suite size, but never a certain area of town (Western to Victoria to Sidney). The suite requirement is not purely a financial need – we want a place for the mother in law to live. We are still searching, but this new CG information has us questioning any future implications. I guess it would be probably be best to reach out to an accountant? Recommendations?

  134. I rented for almost a year before finding the right place to buy. Not saying everyone does that but probably a few do.

  135. Gwac, $150K or so over assesment is normal these days.

    Vancouverites will find Victoria pretty boring in a hurry if they expect shopping by Gonzales Beach. After the first few months here they could be in for a wake up call this ain’t the Vancouver buzz.

  136. Marko I would hazard a guess a good % of landlords do not report rental income. My point is whether it is rental and or capital gains. Government has more tools to nail those people not declaring.

  137. Reasonfirst, I don’t think anyone is trying to be dishonest, it’s just that some people sell in Van first, and then rent here or stay with family while waiting to buy (so technically they have a Victoria address).

    Rook, I know what you mean – I think people are still going to be moving for retirement reasons. eg., we know one couple in Vancouver who’ve already sold their place and are just waiting for the right moment to leave their jobs and move.

  138. Reasonfirst,
    You are right, I can’t see why they would want to. Sorry, just so used to everyone being so dishonest in this business.

  139. Rook,

    “The numbers we do have are people that put a Vancouver address on the documents, but there are ways around that isn’t there?”

    What would be the motivation of a Vancouver buyer to fudge their origin?

  140. Lately I have overheard quite a few people talking about how they have moved here recently from Vancouver. Today I overheard a woman talking about how the nearest beach to her (Gonzales) is beautiful but lacking any shopping or culture around it. I felt so sorry for her.
    Anyways, I kind of wonder if we have any reliable data on how many of the purchasers in the last 6 months have been people cashing out of Vancouver? The numbers we do have are people that put a Vancouver address on the documents, but there are ways around that isn’t there? I ask because anecdotally I really do hear this story a lot and know I’m not alone in that.

    I am am anticipating that the undergoing correction in Vancouver will start being noticed soon and really hit home in the spring. I wonder what that is going to do for numbers moving here. Do you guys think that would slow the migration down? Or do you think we can see an even more overwhelming number move across?

    http://www.metronews.ca/news/vancouver/2017/01/12/vancouvers-management-class-planning-to-cash-in-and-leave.html

  141. Sure, I didn’t claim CCA. I also didn’t make any structural changes; I bought the house the way it is and inherited a tenant. Ancillary is debatable but 30% of the total square footage for a portion of the years we owned the house seems ancillary to me.

    ☑ No one really claims CCA
    ☑ Most people don’t make structural changes to their home; they buy a home that has already been structurally changed
    ☑ “Ancillary” is so vague that it has hitherto been, and seemingly will continue to be, interpreted by most* accountants as 50% of total square footage or less

    *both totoro’s accountant and mine interpret ancillary this way; I’m not sure how CuriousCat interprets it with respect to her clients.

  142. Agree. My point was related to your comment about waiting till next year to decide if you want to rent the suite again – there’s nothing to gain by waiting till next year. The gov’t has already been expecting people to pay the CGs, and now they’re just making it easier on themselves to catch more people who aren’t reporting the CGs.

    I would disagree, what if my assessment goes up another 20% next year? As it stands right now I am losing money renting the suite due to ridiculous appreciation. My neighbour without a suite is better off.

  143. Thanks Marko – if there was more inventory, my lady and I would consider selling our place and moving, but we don’t want to participate in bidding wars, or settle on a piece of crap…and we aren’t even looking in Victoria. I wonder how many would-be sellers are put off by the current conditions?

    A lot. The transaction costs don’t help either. If you want to sell a $1,000,000 home to buy a smaller $800,000 home, there is over $50k in transaction costs. The average Joe still hasn’t embraced alternative real estate commission and then there it the PTT.

    At $50k you have a lot of options as an owner in terms of renovating or adapt your existing home versus selling and then buying and blowing $50,000 on paper flipping.

  144. “why would I rent out my suite to pay $500 in income tax and potentially $500 in CGs ”

    Agree. My point was related to your comment about waiting till next year to decide if you want to rent the suite again – there’s nothing to gain by waiting till next year. The gov’t has already been expecting people to pay the CGs, and now they’re just making it easier on themselves to catch more people who aren’t reporting the CGs.

  145. So all you landlords know who are cheating on your income tax. They have started using government correspondents to the same identical address to identify potential rental income. Big brother will catch you eventually.
    Everyone files income tax and puts their address on it. Recently the software has been updated to spit out this kind of information.

    This is nothing new, you’ve always had to report suite income. The majority of people of I know report their suite income. There are benefits such as it bumps up your income so you increase your income/borrowing capacity for investment properties, etc.

    No one is saying don’t claim the income, it’s a discussion about CGs.

  146. Why not just budget to pay the Capital Gains tax if you need to? The gov’t can start enforcing the rules more stringently whenever they want. There are literally thousands of articles talking about this, eg., TaxTips.ca. Otherwise honestly it may appear like you’re advocating that people evade taxes if they can get away with it.

    I don’t need the monthly cash flow of $1,200 so why would I rent out my suite to pay $500 in income tax and potentially $500 in CGs when I can just use it for personal use for next 15-20 years? I had a gut feeling when I built the home this might happen so I put nothing in the island other than cabinets. Can easily be converted to a linear bar and island removed to accommodate a larger media room space.

    Last year I took off to Europe for 6 weeks in the middle of the busiest market in history as I didn’t want to get slaughtered on income taxes….is that considered evading taxes too?

    There is nothing illegal about not renting your suite or working less to pay less tax, as far as I know.

  147. So all you landlords know who are cheating on your income tax. They have started using government correspondents to the same identical address to identify potential rental income. Big brother will catch you eventually.
    Everyone files income tax and puts their address on it. Recently the software has been updated to spit out this kind of information.

  148. It would be hard to dodge rental reporting in Ontario and Manitoba (not sure of all provinces), since there is the provincial tax credit for rent paid, which requires annual amount paid, address, and landlord’s name. Every tenant wants that tax credit, no? It would therefore follow that most landlords in those provinces are reporting rental income.

    However if there is widespread belief that when you rent less than 50% of your house then you do not claim capital gains when selling, I can imagine this conversation over at CRA:

    “Hey Bob, we have a database of 10’s of thousands of landlords that are deducting 50% of their expenses against their rental income, but we can’t check whether or not they are reporting their capital gains. Also I keep hearing about these people that are flipping their homes, building laneway houses in Vancouver, heck there’s a TV show called “Income property” and “Flip that House” on HGTV! How can we go after these taxpayers? We really need to know when they sell their properties so we can spot audit. Hmmmm… let’s force people to claim the principal residence exemption!”

    “Ya Jim, great idea! Not only can we cross-check against the landlords we already know about in Ontario, but BC has tons of suites too – just check out the last census! We probably will find out about people that haven’t been claiming their rental income as well!”

    “I know, there is totally NO downside to this for us at all! There won’t be any political backlash because nobody really likes tax cheats anyways. It’s a win/win!”

    Yup, I have an overactive imagination. 😉

  149. Adanac – a tiny, tear-down house on a small lot. I was viewing much nicer, bigger (1200 sq. ft.) duplexes a few blocks away on similar sized lots for less money. I don’t think we’re into million dollar crack house territory yet.

    Torquay – sure it has a suite, but those strata fees could cover another $100,000 in mortgage. Nevermind that there are almost no amenities nearby and your lot is only 2600 sq. ft. I’d rather buy an executive townhome or condo in a walkable neighborhood. You’re basically paying for a $700,000 mortgage on $450,000 – $500,000 of property.

  150. Lot prices in the core must be dropping. 1753 Adanac Street slashed their price a second time, down over $70K from starting point. Get yer low balls ready.

  151. Another Golden Head price slash. 4391 Torquay Dr #23 Two price slashes down $50K from original starting price. Part of a townhouse property but still have 7000 sq ft lot and all reno’d.

  152. Does this map look about right? https://censusmapper.ca/maps/519#12/48.4615/-123.3864

    Maybe CRA knows more than we think they do, and they are simply trying to enforce compliance. They probably figure they should be collecting more taxes than they actually are and that the honour system isn’t generating the level of tax revenue they are expecting based on data. In order to audit someone, they need to know who to target, hence the mandatory reporting.

  153. Halibut,

    It doesn’t specify who makes the structural change – just that there is a change.

    and 30% not being ancillary is definitely debatable.

  154. Thanks Marko – if there was more inventory, my lady and I would consider selling our place and moving, but we don’t want to participate in bidding wars, or settle on a piece of crap…and we aren’t even looking in Victoria. I wonder how many would-be sellers are put off by the current conditions?

    “Oaklands will be the first area to tank as most of the houses are post WW2 crap full of asbestos.”

    Come on Hawk, that is true of half of Victoria:) They put that shit in everything until the 70s – drywall, drywall mud, plaster, resilient underlay, etc – and even after it was banned, it still found its way into Canada in products manufactured in the US. I bet most of us on this blog have asbestos in our homes. The best way to deal with it, is to leave it alone…

  155. Anyone have a different take on it?

    a), b) and c) of 2.59 all need to be applied. If you have a suite with a separate entrance and a kitchen (which I assume is pretty vanilla for most suites) then b) is contravened (there is no structural change) even if the house is your primary residence.

  156. “If in the next 12 months there is no news of people pay CGs on suites I’ll probably go back to renting my suite.”

    Why not just budget to pay the Capital Gains tax if you need to? The gov’t can start enforcing the rules more stringently whenever they want. There are literally thousands of articles talking about this, eg., TaxTips.ca. Otherwise honestly it may appear like you’re advocating that people evade taxes if they can get away with it.

  157. I feel like the general public could at least argue that based on these three points one shouldn’t be subject to CGs.

    a) the income-producing use is ancillary to the main use of the property as a residence;
    b) there is no structural change to the property; and
    c) no CCA is claimed on the property.

    Sure, I didn’t claim CCA. I also didn’t make any structural changes; I bought the house the way it is and inherited a tenant. Ancillary is debatable but 30% of the total square footage for a portion of the years we owned the house seems ancillary to me.

    The problem is the CRA can just say “you’re wrong” and I’d be forced to pay up anyways. I agree with Marko, now that people have to admit to selling a house, if the CRA notices that rental income had been earned on that property, we may hear of a few people with surprise tax bills in the next year or so.

  158. Here are the stats by CRA as of Sept. 12, 2016 (this after adding 50 extra income auditors, plus 35 other staff on the B.C. real estate “project” earlier in 2016):

    “In 2015, the Agency doubled its level of effort focused on the BC real estate sector. For the period from April 2015 to June 2016, the CRA completed 2,592 income tax and GST/HST audits related to real estate in Ontario and British Columbia. During this time, the CRA also reviewed 10,537 rebate claims. Penalties amounting to $11.6M were levied against those that demonstrated gross negligence in failing to report their tax obligations correctly.”

  159. Another reliable signal would be the sounding of alarm bells by our local news media, which hasn’t happened yet.

    This is what I am waiting for really. If in the next 12 months there is no news of people pay CGs on suites I’ll probably go back to renting my suite.

  160. It seems to be any house w/ a basement suite is not subject to CG on sale if the primary use of the house is the owner’s personal residence, and the owner resides there.

    I’m operating under the assumption that the above is true until my accountant informs me otherwise. Another reliable signal would be the sounding of alarm bells by our local news media, which hasn’t happened yet.

  161. “That’s hilarious, anyone with a half assed credit rating can go buy or lease a fancy car to live the dream in Oaklands. Sounds like more agent propaganda to keep the bubble afloat.”

    I’ll second Marko’s observation about luxury cars showing up at newly-purchased houses that formerly weren’t considered fancy enough to attract owners with luxury cars. I’ve driven by several of the houses that I looked at in the spring and noticed the same thing.

  162. http://www.greaterfool.ca/2016/10/03/the-tax-whack/

    Interesting take on this issue from ‘greater fool’ blog… remember this was written around the time when the release came from the Fed’s on Oct. 3, 2016 stating that they were going to require people to declare sales of their primary residence for the first time on their income tax returns.

    The link I provided from the CRA came later – Nov 30,2016 – than this article, and provides some more clarification. but it’s still telling how ‘big brother’ is looking further and further into our private lives than ever before…

  163. http://www.cra-arc.gc.ca/tx/tchncl/ncmtx/fls/s1/f3/s1-f3-c2-eng.html

    Follow this link and read ‘Partial Changes in use’ pasted below. It seems to be any house w/ a basement suite is not subject to CG on sale if the primary use of the house is the owner’s personal residence, and the owner resides there.

    Read Section 2.59: “the income-producing use is ancillary to the main use of the property as a residence” “no structural change” and “no CCA claimed” This would indicate to me to me that as long as you didn’t convert your house into a business frontage, or duplex,triplex… then it is still considered to be primary use as a private residence. You are still “allowed” to rent part of the house out and claim non capital expenses, and claim rental income on your taxes and everything should be fine when you go to sell your ‘primary residence’, therefore remaining capital gains exempt.

    Anyone have a different take on it?

    Partial changes in use

    2.57 If a taxpayer has partially converted a principal residence to an income-producing use, paragraph 45(1)(c) provides for a deemed disposition of the portion of the property so converted (such portion is usually calculated on the basis of the area involved) for proceeds equal to its proportionate share of the property’s fair market value. Paragraph 45(1)(c) also provides for a deemed reacquisition immediately thereafter of the same portion of the property at a cost equal to the very same amount. Any gain otherwise determined on the deemed disposition is usually eliminated or reduced by the principal residence exemption. If the portion of the property so changed is later converted back to use as part of the principal residence, there is a second deemed disposition (and reacquisition) thereof at fair market value. A taxable capital gain attributable to the period of use of such portion of the property for income-producing purposes can arise from such a second deemed disposition or from an actual sale of the whole property subsequent to the original partial change in use. An election under subsection 45(2) or (3) cannot be made where there is a partial change in use of a property as described above.

    2.58 The above-mentioned deemed disposition rule applies where the partial change in use of the property is substantial and of a more permanent nature, that is, where there is a structural change. Examples where this occurs are the conversion of the front half of a house into a store, the conversion of a portion of a house into a self-contained domestic establishment for earning rental income (a duplex, triplex, etc.), and alterations to a house to accommodate separate business premises. In these and similar cases, the taxpayer reports the income and may claim the expenses pertaining to the altered portion of the property (that is, a reasonable portion of the expenses relating to the whole property) as well as CCA on such altered portion of the property.

    2.59 It is the CRA’s practice not to apply the deemed disposition rule, but rather to consider that the entire property retains its nature as a principal residence, where all of the following conditions are met:

    a) the income-producing use is ancillary to the main use of the property as a residence;
    b) there is no structural change to the property; and
    c) no CCA is claimed on the property.

    2.60 These conditions can be met, for example, where a taxpayer carries on a business of caring for children in the home, rents one or more rooms in the home, or has an office or other work space in the home which is used in connection with business or employment. In these and similar cases, the taxpayer reports the income and may claim the expenses (other than CCA) pertaining to the portion of the property used for income-producing purposes. Certain conditions and restrictions are placed on the deductibility of expenses relating to an office or other work space in an individual’s home – see Interpretation Bulletin IT-514, Work Space in Home Expenses (if the income is income from a business) or Interpretation Bulletin IT-352R2, Employee’s Expenses, Including Work Space in Home Expenses. In the event that the taxpayer commences to claim CCA on the portion of the property used for producing income, the deemed disposition rule is applied as of the time at which the income-producing use commenced.

  164. “My family has been in the Oaklands area since we landed here as immigrants in 1994 and it’s so weird seeing luxury cars parked in front of bungalows. ”

    That’s hilarious, anyone with a half assed credit rating can go buy or lease a fancy car to live the dream in Oaklands. Sounds like more agent propaganda to keep the bubble afloat. Oaklands will be the first area to tank as most of the houses are post WW2 crap full of asbestos.

  165. “Calgary & Alberta’s most important two commodities have fully doubled over the past year, so it’s not difficult to see why their prices have been stable past 12 months. Oil co’s have started investing and hiring again too.”

    So I guess the Alberta workers who came here will be heading back there to their old jobs that pay better money and have cheaper housing by a long shot.

  166. Calgary & Alberta’s most important two commodities have fully doubled over the past year, so it’s not difficult to see why their prices have been stable past 12 months. Oil co’s have started investing and hiring again too.

  167. Earthquake would just add to the problem Marko assuming jobs stay and a lot of place are damaged. Hope it never happens for a few more 100 years . 🙂

  168. The part about the whole CG discussion that I still find surprising is how many people didn’t know about the CGs – if I knew and my friends knew, and we’re not RE geniuses, then why didn’t others know. Maybe it’s the city we were living in? There were a lot of news articles that came out of Ontario about this, eg., you can find them & discussion groups going back to 2007, 2012, etc. 1 example of thousands: http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/thinking-of-renting-that-basement-suite-tips-for-first-time-landlords/article4374210/ (See point #7)

    Maybe it’s a generational thing too. In the 90s and before, when people wanted to invest in rental property, they bought a purpose-built duplex or apartment building (on their own or with partners).

    Starting in the 90s & into the 2000s, we had more & more condos built instead of apartment buildings, and we had shows like HGTV’s Income Property promoting basement suites.

    This brought RE investing to people who didn’t have experience with the associated taxes – including realtors. Every realtor I’ve spoken to says, “Don’t talk to me about taxes – talk to your accountant or whoever does your taxes”.

    Unfortunately, the government, developers, TV shows, etc didn’t properly inform your average Joe/Joelle about the taxes before they bought that fancy new basement suite.

  169. I was pushing Oaklands on this blog 5 years ago but everyone was obsessing with Oak Bay and still is! It’s so convenient and walkable. I personally walked to Oaklands school, Lansdowne, and Vic High. My parents didn’t drive me once.

  170. My family has been in the Oaklands area since we landed here as immigrants in 1994 and it’s so weird seeing luxury cars parked in front of bungalows. There was a bungalow that went last year in the mid 700s in the Oaklands area and now there are two Lexuses parked out front every time I drive by 🙂

  171. “You have a ton of people looking from last year in the Oaklands area + newer buyers and not one house is listed. It’s a bad situation.”

    Oaklands went so crazy last year. I put in a bid on a place in that area in the spring and had 15 or so competitors. The place sold for $100,000 more than I bid, and I bid over asking. Sigh.

    Also anecdotally: Friends of a friend grew up in Victoria but had been living in Vancouver for 15 years for school and then work. They decided that they wanted to move back to Victoria and commute to Vancouver occasionally for work because their jobs allow for that and they couldn’t afford a house otherwise. They put in a bid for $900,000ish on a place in Oaklands in the fall that was listed for $750,000ish (can’t remember the price exactly) and won. They were then bragging about how cheap the house was compared to anything in Vancouver. So that’s who’s moving to Oaklands.

  172. Be curious to hear some anecdotes about inventory too.

    It is a disaster. Anecdotally I have a lot of buyers left over from last year that lost out in bidding wars. Then I have the people that email me after the New Year that want to start looking (fresh buyers).

    Sometimes I have 3 to 4 people emailing me about the same property (never happened in the past). I am one out of 1300 realtors so that gives you an idea of how many eyeballs are on the same property.

    Another anecdote. There are currently no properties (other than a pre-sale) listed in the Oaklands area (the home on Scott Street is sold subject to probate). A place on Scott Street that sold a few months ago had 26 offers on it.

    You have a ton of people looking from last year in the Oaklands area + newer buyers and not one house is listed. It’s a bad situation.

    Unless we get some sort of huge shock (stock market crashes 50%, earthquake, interest rates jump 2% overnight, foreign buyer tax) it is going to be a long time to work out of this market.

  173. @ Barrister, That’s not what I said at all. I said it should be treated differently. I pay lots of tax. I have a rental property and would expect to pay CG on it when it’s sold. Same with my stocks outside an RRSP or TFSA. I should spend more effort to avoid taxes probably but don’t. The principle residence is kinda like those vehicles. a suite is not an independent asset either. The income is wholly taxed and you take a bigger lifestyle burden by renting it out vs an external rental property. It’s just not the same thing and isn’t really clear right now anyway. A kitchen makes the difference than say making my home a rooming house with one kitchen? I think it should be clarified and the simplest thing is to just make it so you can’t have any write-offs, you need to live there all year round and the income from the rent is added to your income as it is now. No CG’s upon the sale. Simple. Plus, it’s reflective of what is actually happening now. Only the select few are paying CG on their suites….

  174. When you see Calgary being up, it should be quite clearly that fucked up things are going on in the housing market. A market going through a major downturn shouldn’t have a housing market that’s still going up.

  175. This gain was led by Toronto (a record 19.7%), Victoria (17.7%), Hamilton (a record 17.5%) and Vancouver (17.0%). Twelve-month increases were much smaller in Ottawa-Gatineau (3.6%), Winnipeg (3.4%), Halifax (1.5%), Montreal (0.8%), Calgary (0.6%)

    So Vancouver has given up approximately 3-5% after a 20% run up in the spring? At this pace it would take more than a year of consistent 1% drop per month to give up gain made in the spring of 2016 alone.

    How on earth is Calgary up?

  176. I am all for suite CGs IF there was something reasonable done about flipping mansions.

    We already tax the rich via income tax bracket why not tax someone that flips a house in the Uplands in <5 years for a million profit?

    In my opinion, just like buying an electric car (and receiving a $5,000 rebate), there is a benefit to society from someone renting out the basement in their Oakland’s bungalow (reduces urban sprawl, etc.). Doesn’t make sense to tax him or her but not the owner of the mansion in the Uplands.

    What drives me nuts is seen places flipped within 24 months for more than $500k profit and that not being taxable because there is no suite.

  177. Amazing the reasons people come up with as to why they should not get taxed while the other guy should get taxed. If inventory was high then should capital gains be set at a full amount? One has nothing to do with the other.

  178. @ Leo, not really. A duplex I can actually sell one half and keep the other. So IMO it should be clarified as something else. It’s obviously too messy as is. It would be better to simply not allow any tax write offs on the suite. The income is fully taxed. No need for this funny business. You can’t sell it and you can claim losses. So, it’s not the same thing.
    Capital gains will only further impact inventory. It prevents people selling in favour of extending the income and waiting until you absolutely have to sell. Like my Apple shares I have held for 20 years….

  179. Declared income and cashflow are 2 different things. They are writing off a lot of expenses that they would not normally able to.

    Some of the deductions include:

    Advertising
    Insurance
    Interest (mortgage)
    Legal, accounting, and other professional fees
    Maintenance and repairs
    Management and administration fees
    Motor vehicle expenses
    Office expenses
    Other expenses
    Prepaid expenses
    Property taxes
    Salaries, wages, and benefits (including employer’s contributions)
    Travel
    Utilities

    Source: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/rntl/bt/rprt/xpns/menu-eng.html

  180. Barrister you are dead on. Fact is when you are buying a house with a suit you are buying an investment and it doesn’t make sense that the owner of a legal duplex is treated differently than someone flying under the radar with an up/down duplex (aka suite).

    suite should be treated differently because you can’t sell it.

    You certainly can. Convert it back to a usage as part of your house and notify the CRA of the change of use. Same as selling it in their eyes. Now it’s no longer a rental and you can claim the full principal residence exemption going forward

  181. @Jerry – it’s more than that because you’re also writing off a bunch of expenses – mortgage interest, prop tax, repairs etc. But it’s true that the year-over-year profit tends to be low.

    I suspect there is some political will involved in how closely the CRA applies these rules. If housing becomes more of an issue, we may find it remains not enforced. For example, my company used to claim SRED credits (science & research). A mandate came out from the feds to reduce the dispersal amounts – and low and behold the witch-hunt started. Crazy thing is lots of companies I know that claim the credit somewhat dubiously had no issues, but the small shops who the program is designed to assist got nailed. I appealed my last claim and it has been waiting for review for 3 years…

  182. @Jerry, because the other 12k is going to the mortgage. But yes, the economics are spotty if you are tainting your principle residence in a location that experiences high appreciation. Suddenly my house plans not having a dedicated suite makes more sense.

  183. @Barrister, a suite should be treated differently because you can’t sell it. CRA should just write clear rules. My new government contracting company will only charge 800k to do it… ill make it 500 pages to make it seem worth it… The city should also stop its nonsense and rezone for real. This garden suite thing is more BS. You still need to rezone to do it. Would rather try for duplex zoning then… which they should just rezone all of Victoria for…. enough with the spot zoning. No house in the core is built SF anymore anyway. They are all up-down duplexes…. with grey tax rules….

  184. Jerry

    Declared income and cashflow are 2 different things. They are writing off a lot of expenses that they would not normally able to.

  185. There is one tremendously interesting thing that comes out of the suite/CG discussion. Curious Cat mentions in two different posts that a couple renting a suite will each add around $2000 a year to their income.

    Why would you have a stranger in your home year-round for such a pittance? Your family would do better with a paper route.

  186. Being liable for capital gains has always been part and parcel of owning a rental property. Whether you have a rental suite in the basement or a house divided into two parts what you actually have is a duplex.
    I am going to take an unpopular position on this and simply state that it is long overdue that all landlords get treated the same. City council has decided to allow all homes in Victoria to be converted into legal duplexes. I dont see any difference between owning a condo used as a rental unit or having the rental unit be inside your house. Either way you have chosen to be a landlord and all landlords should be treated the same when it comes to taxation. The fact that you live in one of the two units in your house does not change the tax character of the other one. This is not new, duplexes have always been treated this way.

    I have owned rental properties in the past and CG was always part of the equation. It is long overdue that CRS treats all landlords the same and that the tax burden is shared fairly.

  187. Of course we wouldn’t feel bad about someone that had bought in to Apple 20 years ago and had to pay capital gains tax now.

  188. “In December the composite index was up 12.3% from a year earlier – an 11th consecutive month of acceleration and the largest 12-month increase since June 2010. This gain was led by Toronto (a record 19.7%), Victoria (17.7%), Hamilton (a record 17.5%) and Vancouver (17.0%). Twelve-month increases were much smaller in Ottawa-Gatineau (3.6%), Winnipeg (3.4%), Halifax (1.5%), Montreal (0.8%), Calgary (0.6%) and Edmonton (0.1%). Prices were down from a year earlier in Quebec City (−0.7%).”

  189. Yes, it’s a bit loony to imagine. Average westside Van house: $3.5 M. Suite at 40% of total area would be worth $1.4 million! If the property was held for 25 years, it could have been bought for 250k or so in the 80s. That’s a heck of a tax hit on the 1.15M of CG – quite comparable to the 15% foreign buyer tax once expenses are deducted, I suspect.

  190. Of all the people on this blog, I believe LeoM is the only one that has paid it – and he did so voluntarily.

    No he said he was audited and chose not to fight it. That’s not voluntary.

    That said I do see Marko’s point that we would hear more about it if it was common practice. We can safely assume that the vast majority of people do not pay CG tax when selling their house with a suite. All the evidence points towards CG applying on most of those sales but since it was never necessary to report the sale there wasn’t a way to track it and it wasn’t a priority for the CRA to pursue.

    There are many things that the CRA could pursue and suites have clearly not been a priority, just like they had only a handful of tax fraud involving real estate investigations in Vancouver up until recently. Suddenly it became a priority and they started looking more closely.

    So will suites become a priority for them? Well it definitely seems like they are setting the foundations for it. But of course they could continue to look the other way for many more years.

    As I said if they pursue it it will hit the news in a massive way. Imagine paying capital gains on your vancouver property because you’ve been renting out half of it for decades…. There will be significant political pressure on the CRA not to be too strict with these rules I believe.

  191. It seems like a self-contained suite representing 50% or less of a principal residence’s floor space is and always has been considered “ancillary” to CRA.

    The 50% was just a number that was tossed around with zero official backing. I think that is definitely disproven as we’ve seen several examples where the suite was less than 50% and still subject to CG.

    Where is your source that the CRA defines “small in relation to the whole property” as less than 50%?

  192. Be curious to hear some anecdotes about inventory too.

    Not sure what kind of anecdotes you are looking for. Inventory is at record low levels. No anecdotes necessary 🙂

    Here’s one though. Excluding stale listings, there are 9 detached houses in the core for under $750,000.

  193. There is a huge premium for finished basement versus unfinished basement.

    There isn’t a huge difference between finished basement versus suited finished basement…maybe 10-20k?

  194. Marko:

    Just generally how much of a premium are you paying for a house with a basement suite. Just ballpark?

  195. Having said all that, I think it’s safest to assume that CGs will apply to suites given the latest move to require owners to make a declaration. Will be interesting to track this going forward.

    I am choosing not to rent my suite out as a result. I’ll certainly be paying close attention to this going forward and it won’t be too difficult as so many homes being sold have suites.

  196. I tend to agree with Marko – it’s bizarre that I haven’t heard of anyone paying CGs on a suite, or even talking about the possibility of it.

    My thoughts are if people in fact have been paying CGs on suites you would think there would be documents out there on some very basic bookkeeping items. For example, given that most suites are illegal and not documented with muncipalities how do you measure a suite? If the suite is 800 sq/ft and the home is 2,000 sq/ft finished plus an attached 400 sq/ft garage do you calculate the suite size percentage off 2,000 or 2,400 sq/ft? Etc., etc…..there is zero guidance on a lot of different things pertaining to claiming CGs on a suite.

  197. I tend to agree with Marko – it’s bizarre that I haven’t heard of anyone paying CGs on a suite, or even talking about the possibility of it. Of all the people on this blog, I believe LeoM is the only one that has paid it – and he did so voluntarily. Having said all that, I think it’s safest to assume that CGs will apply to suites given the latest move to require owners to make a declaration. Will be interesting to track this going forward.

  198. My view is that there’s a time value to the rental income that I’m putting to good use today, whereas the tax liability waiting for me ~20 years from now when I sell will be somewhat diminished by the effects of inflation.

    Yes. Also, the law may revert under a future (Conservative?) government. Also, there may be tricks to lessen the CG hit (e.g., waiting to retire before selling, so that one is in a lower tax bracket). Also, we’re still not crystal clear what today’s rules are!

    I think a self contained suite built for the purposes of rentals clearly does not fall into ancillary use, while renting out a few rooms on AirBnB would. You’re going to have a heck of a hard time convincing the CRA that putting in a separate kitchen is not solely for the purposes of generating income.

    It seems like a self-contained suite representing 50% or less of a principal residence’s floor space is and always has been considered “ancillary” to CRA.

    However, you are not considered to have changed its use if:

    the part you use for rental purposes is small in relation to the whole property;
    -you do not make any structural changes to the property to make it more suitable for rental purposes; and
    you do not deduct any CCA on the part you are using for rental purposes.

    “Small” seems to be 50% or less according to CRA. Regular folks may not agree, but it’s only CRA’s opinion that matters.

    I’ve never known anyone personally that has pay CGs on the suite which makes things even all more confusing.

    Neither have I. Which validates what I’ve said above.

  199. “Noticed a crazy number of people at 3174 Yew when I got home today. Looked like a spring open house.”

    It’s in the core, is priced below $600,000, and has a suite. That’s exactly the kind of property that many people are after right now.

  200. Marko:

    I think people made a practice of not paying the CG but now the tax dept is about to start enforcing it.
    basically they have found a golden goose to pluck since everyone jumped on the suite in the basement
    trend and municipalities started allowing legal suites. There will be a pot of gold to be found.

  201. 3174 Yew – priced below assessment and looks like a great deal. I imagine they’re under-pricing it and trying for the first bidding war of the year?

  202. @gwac
    Be curious to hear some anecdotes about inventory too. Noticed a crazy number of people at 3174 Yew when I got home today. Looked like a spring open house. That house hit the market yesterday. I’m guessing selection remains shitty…

  203. “I am still not totally convinced that anyone is actually paying the CGs”

    I think some people are already paying CGs, but if you think some aren’t, then it proves why CRA is probably cracking down on this with the new “principal residence” section in Schedule 3 – it forces people to make a declaration on their income taxes – whereas before it could be hidden more easily.

    Several people I know were aware of the CG requirement many years ago, because we discussed the pros & cons of suites. I just didn’t fully understand the brand new Schedule 3 reporting requirements until I read this blog – I wasn’t around when this whole thing was announced 🙂

  204. The way I read this as a tax professional

    Not sure why it should be “read.” Every other house in Vancouver and Victoria has a suite and it’s pretty much all the same (suite in the basement, about 25 to 40% of the home, interior staircase present)…should be very clear cut.

    I’ve never known anyone personally that has pay CGs on the suite which makes things even all more confusing. I doubt everyone is dodging or getting incorrect advice from their tax professionals? If these rules were obvious I would think of the 100s of people I know through real estate/network of friends I would have come across someone by now that has paid CGs on the suite?

    I am not willing to take the risk as I already paid income in a high tax bracket so the benefit of me renting my suite is small to start not including the potential CGs. Why risk it, but I am still not totally convinced that anyone is actually paying the CGs.

  205. @Vic Renter — just to give you an idea, we go with a suite size of 30%. I can cut our taxable income in half simply by claiming 30% of property tax, home insurance, mortgage interest, and utilities. Thats also before worrying about individual repair and maintenance expenses. This leaves about $3,000 in taxable income to my wife and I which Im happy to pay so that I can sleep at night.

  206. @CuriousCat: Just saw you post in response to Sidekick Spliff and I now see that utilities, mortgage interest, etc. factor into things. Thanks again!

  207. @CuriousCat: Thanks so much for all of the time and expertise that you’re devoting to answering questions about suites!

    “Most tax returns I prepare, the net income added is around the $1000-$2500 per person.”
    Interesting. I would have assumed that a suite rented out at $1000/month would just add $6000 to each homeowner’s annual income and tax would be paid at their usual rate. As a non-suite owner I clearly don’t know much about this, but as an aspiring homeowner and potential suite owner, I’d like to know more. Can you deduct various expenses from rental income? (Apologies in advance for the likely naive question!)

  208. What are your thoughts on the risk in this case (stopping rental now)? I think if they are actually going to pursue this it will hit the news in a MASSIVE way (at least out west where suites are everywhere). Personally I would wait and see what the fallout is first in Marko’s situation.

    I would go through the exercise of calculating what the capital gain would be in that scenario, and then armed with that information, make a future projection based on Marko’s plans on when he is planning on selling the house, etc. Once I had two numbers I was comfortable with, I would present that to Marko and tell him to choose. Perhaps he would choose instead to go with a third option, if he believes his house will go down in value in the future, which is to keep renting the suite out until the value of his house drops in order to minimize the capital gain.

    I can only advise that people follow the income tax act.

  209. I think year-over-year a net loss on a rental is somewhat common. Come income-tax time, gross rental income less expenses can be <=0.

    You are right Sidekick Spliff, it is common for people to report rental losses, especially if the suite is 50% of the house and you have a large mortgage. Only recently with lower interest rates, are people actually making income from suites!

    Here is a REAL WORLD example from last year:
    Home in Maplewood area, basement suite is 40% of the house rented at $1250/mth.

    I’m looking at an amortization schedule right now: Original amout is $588,000, interest is 2.69%, interest was $18,628.87. Annual property taxes 3840.66, utilities 3175.92, house insurance 1249, R&M 630.95, house appraisal fee 210.00. Income to husband was $1914.24 and to wife $1914.24.

    Wife is a stay-at-home parent, however they still paid to send their child to preschool which they can now deduct as child care expenses instead of it being wasted (almost always goes to lower-income spouse). Net result is wife paid no taxes and husband still gets the full spousal/eligible dependant credit. Husband ended up paying 23% tax on the $1914, which resulted in a smaller refund (less $440).

  210. It would be nice to see a CLEAR set of rules. If there was clear set of rules it would be super easy to navigate around this in a number of different ways.

    Hence why it’s not in CRA’s interest to be that specific.

  211. Note the wording is different (anciliary use rather than a reference to size) and the example is of renting a few rooms.

    However on this page which was last modified Jan 4/2017: http://www.cra-arc.gc.ca/E/pub/tg/t4036/t4036-e.html#P4036_004 they word it differently:

    You are usually considered to have changed the use of part of your principal residence when you start to use that part for rental purposes. However, you are not considered to have changed its use if:

    the part you use for rental purposes is small in relation to the whole property;
    -you do not make any structural changes to the property to make it more suitable for rental purposes; and
    you do not deduct any CCA on the part you are using for rental purposes.

    Maybe they felt the word “ancillary” was too fancy for some people?

  212. According to T4036:

    – the part you use for rental purposes is small in relation to the whole property;
    – you do not make any structural changes to the property to make it more suitable for rental purposes; and
    – you do not deduct any CCA on the part you are using for rental purposes.

    If you meet all these conditions, the whole property may qualify as your principal residence even though you are using part of it for rental purposes.

    If you do not meet all of the above conditions, when you sell or change the use of the property, you have to:

    1/ split the selling price between the part you used for your principal residence and the part you used for rental purposes by using either square metres or the number of rooms, as long as the split is reasonable; and
    2/ report any capital gain on the part you used for rental purposes. You do not have to report any capital gain for the part you used for your principal residence.

    The way I read this as a tax professional, is that if you rent one or two bedrooms out of your house to a student, or a relative or a friend or even AirBnb, and you haven’t built walls to give them a separate private space, you haven’t built a separate kitchen, you haven’t punched a hole through the side of the house to give them direct access to the bedroom even, you haven’t done ANYTHING to make it more suitable to rent, then the whole house retains it’s purpose as your principal residence. It’s common sense, really, hence why CRA didn’t go through the exercise of being more specific by saying something like “less than 25% of your house”. Also, by being vague, it benefits them, not you. YOU are the one that will have to argue and defend yourself in tax court. It’s not like criminal law where you are presumed to be innocent. CRA has the power to reassess you, for multiple years, with penalties and interest, and then YOU have to prove, with a lot of documentation and time and money why their reassessment is unfair. Or as most people do, they just stick their tails between their legs like a dog that has been caught eating the family dinner, and pay the tax bill. And guess what? Do you think they tell all their families and friends about it? They are ashamed and embarrassed, so that is why you don’t hear about it.

  213. The Canadian subprime trainwreck continues behind the scenes. 10% was enough to tank the US markets.

    Bundles of debt: How lenders sidestep Canada’s mortgage rules

    “The rise of bundling reflects declining affordability after a long run-up in home prices, and it could present a danger of defaults if prices fall. Such high loan-to-value mortgages are common when housing markets are about to implode, said David Madani, an economist with Capital Economics who has long forecast a housing crash in Canada.

    “This is what happens at the late stage of a housing bubble – the quality of lending goes down,” he said.”

    https://beta.theglobeandmail.com/globe-investor/personal-finance/bundles-of-debt-how-lenders-sidestep-canadas-mortgage-rules/article33574488/?ref=http://www.theglobeandmail.com&service=mobile

  214. Glad to see CRA issue more specific guidance. However the example chosen is an up and down duplex…not a house with a suite that could be taken back by the owner. I’m not trying to split hairs but I think given the CRAs 3 criteria for determining if CGs apply that a duplex with separate addresses etc could receive different tax treatment than a house with a suite? Especially if the suite is quite small?

    In CRA’s example they do refer to it as a duplex, because that’s what it is. It does not need a separate address. (That’s an issue for the municipality.) I have seen a tax court judge use the dictionary definitions to define words in the tax act that are not specified, so I will do the same here:

    Oxford: “A residential building divided into two apartments.”
    Merriam-Webster: ” a: a 2-family house b : duplex apartment”
    The Free Dictionary: “a. A house divided into two living units or residences, usually having separate entrances. b. A duplex apartment.”

  215. @ VicRenter

    .What if you knew for sure that your tenant wasn’t filing their taxes from your address? Would you risk it then? (Most students, for instance, file their taxes using their parents’ addresses since they move around so frequently.)

    Personally I would report income from a suite. Unless you own your home mortgage-free, the actual net income isn’t likely to be huge, once split 50/50 between you and your spouse. Most tax returns I prepare, the net income added is around the $1000-$2500 per person. Depending on your deductions and non-refundable tax credits, it may not add anything to your taxes owing! Or you can purchase RRSPs to offset it. Go through the exercise of preparing your tax return with the rental and see what it does for your situation. It most likely isn’t as bad as you think.

  216. So you either cristallize your capital gain now, or roll the dice for later.

    What are your thoughts on the risk in this case (stopping rental now)? I think if they are actually going to pursue this it will hit the news in a MASSIVE way (at least out west where suites are everywhere). Personally I would wait and see what the fallout is first in Marko’s situation.

  217. Can someone explain how taxing capital gains on houses with suites is going to help the housing crisis? Seems like anyone that could make 1 or 2 additional suites will not do it now. They are causing a housing crisis with these rules.

    It is not CRA’s job to help with the housing crisis in Victoria. Canada is a very big country where only a small proportion of the taxpayers are even affected by this. I can guarantee you this isn’t a hot topic in Saskatchewen, Manitoba, NWT, Atlantic provinces, most of Ontario, etc where suites in people’s homes are not common.

  218. @Luke

    There are probably tons of people that have suites and they aren’t reporting the income. That is tax evasion. As Leo said, CRA does not care one bit if the suite is “legal” or “authorized” or up to code or whatever the municipality classifies it for their own purposes. They only care if you are reporting your income like a good little taxpayer. (Now if the suite actually creates a rental loss, then CRA has no problem if you do not report it, and may audit you after multiple years of losses to prove that you have a reasonable expectation of profit. So if you are confident your suite is generating a loss, you can choose not to report it, but that doesn’t exempt you from the capital gains when you sell it.)

    How will they know? From what I hear, many audits are undertaken due to anonymous “tips”. This can be a scorned lover, an ex-spouse, a business partner that you screwed, a neighbour you pissed off, the list can be endless and you will never know.

  219. I’ve stopped renting my two-bedroom suite. It’s a shame as it’s less than two years old and I went all out on it (50′ linear fireplace, quartz counters, its own laundry room, etc.) and it would make a great place for someone, but no point in renting with these rules.

    Going to put a huge TV down there and use it as a rec room.

    That’s fine going forward, but you will have to report a capital gain on the suite for the 2 years you rented it, as your home is probably worth a lot more now than it was when you built it. Unless you file the election, but that may cost you more in the long run. So you either cristallize your capital gain now, or roll the dice for later.

  220. Doesn’t this rule apply even if u did not have tenants but have a suite not used personally?

    Correct. There is a requirement that the housing unit must be ordinarily inhabited in the year by the taxpayer or by his or her spouse or common-law partner, former spouse or common–law partner, or child.

  221. @Barrister

    If i understand it right, if you had a tenant for the past three years you will have to pay capital gains whenever you sell. It is not just from this point forward but also includes all previous rental years.

    Correct as far as I can tell. The thing is for the CRA this is not a new rule. It is simply a clarification of the previous rules and now they have a better way to track it. Hence no problem with having it apply retroactively because technically it was always in place.

    LeoS is bang on again.

  222. @ totoro
    My understanding is you can get a market appraisal, but we did this and there is a formula CRA uses to allocate the gain/loss per year of ownership that is calculated when you sell if you defer tax payable on deemed disposition until then.

    Yes, this is what Halibut helpful posted, which I will post again here: https://www.ctf.ca/ctfweb/EN/Newsletters/Canadian_Tax_Focus/2016/1/160108.aspx
    In the example provided, the homeowner would have been better off to claim the capital gain immediately. However the real-world problem is that most people do not have the funds available to pay the tax bill without actually having the proceeds of the sale.

  223. @ VicRenter
    If you bought a house in 2016 for, say, $700,000 (BC assessment value $550,000) and then the 2017 BC assessment value is $650,000, would you have to pay capital gains on your suite? (This is assuming you rented it from 2016-17 and then never again.) What I’m trying to ask is if the purchase price might be used for 2016 and the assessed price for 2017.

    According to information you previously provided, BC assessment value for 2016 was actually $660,000, which is not that far off from $700k. If they stop renting the suite in 2017, that would not have to be reported until 2018 and then by then they should have received BC assessments value for 2017. Let’s say that assessment is $720,000. $720,000/$660,000 x $700,000 = $763,636 to determine a new FMV for the property after one year for a gain of $63,636, prorated by the area used for the suite. That is how I would calculate it. CRA only accepts BC assessment as an indication of how to breakdown the value between Land and Building. Or your friends could get a market appraisal.

    @ LeoS

    No, you cannot claim a capital loss.

    Leo is correct.

  224. What about ‘in law’ suites? What if you build the suite for your ‘in law’ , which is always the case in Oak Bay… wink wink. Then, for a while your ‘in law’ lives in the suite, but later you rent it out, or you never rent it out… and your ‘in law’ always lives there, what then? What if your ‘in law’ lives there for a while, then it sits empty – capital gains now? What if you only added a kitchen, but with no ‘oven’, then didn’t do any major structural changes or alterations, then have your ‘in law’ in for a while, then later do a vacation rental? What if this only makes up 25% of the square footage of your house?

    There definitely seems to be a lack of clarification of rules around this coming from the CRA. I’d also have to agree this will only discourage market rentals of suites to permanent non-relatives, and therefore hurt the rental market even further. The Fed’s are doing nothing good to help the housing situation, it’s mind boggling. Will they supply any more support whatsoever for the rental market once they start raking in all the capital gains? Somehow I think not.

  225. I agree Marko. For all the one-off and rare scenarios the CRA publishes, why isn’t there one for the simplest, most common scenario in which someone rents out a suite in their house?

  226. I think year-over-year a net loss on a rental is somewhat common. Come income-tax time, gross rental income less expenses can be <=0.

    At time of sale, I believe you could claim a capital loss. Buy at 500K, sell at 400K = 100K loss. There are probably some questionable transactions out there where your shell company buys the house from you at an inflated price so you can extract some nice tax free cap gains, then turns around and sells it at market value and claims that as a capital loss.

  227. Guess you have to be a Lib’er to get affordable housing out of Christy and her clowns. Must be where the developers live too. Disgusting.

    IntegrityBC
    ‏@INTEGRITYBC
    UPDATED: Announced affordable housing projects by party that holds riding. 20 of 20 BCLP

  228. Regarding that heritage house, it’s sad what the city did with that property. In a 2015 Heritage Council report, the council said the house had to be cleaned up before it could be rehabilitated or demolished. But the owner had brought reports from VIHA & hazmat teams saying the house had been ordered vacated, and there was no safe way to protect against all the biohazards (biological contamination from 100 cats, mould, and asbestos), so there was no guarantee that the house could be inhabitable after attempts at remediation.

    I don’t know why the city didn’t understand the extreme risk to human health. Maybe the owner went nuts trying to fight it – on the other hand, there really are squatters breaking into empty houses everywhere (including Vancouver).

  229. It would be nice to see a CLEAR set of rules. If there was clear set of rules it would be super easy to navigate around this in a number of different ways. For example, depending on the rules, just build a very small suite in terms of sq/ft and make the rest of your home a tad bigger. 550 sq/ft suite in a 3,500 sq/ft home would not trigger much in terms of CGs assuming it was based on size.

  230. You’re going to have a heck of a hard time convincing the CRA that putting in a separate kitchen is not solely for the purposes of generating income.

    Nanny suite? I am dumbfounded as to why there aren’t a million case studies on this topic? You would think the CRA would have gone after 100s of people and there would be a million excuses/arguments such as “we only rented bedrooms and the tenants used the interior staircase to eat upstairs with us, etc.”

  231. Desperation to own the dream may end up in a lot of pain.

    ‘There are serious consequences’: Suspected Canadian mortgage fraud spikes 52%

    “Some mortgage applicants are fudging the truth to land the home they desire, according to an Equifax Canada study.

    There was a 52 per cent increase in suspected fraudulent activity in mortgage applications since 2013, according to the report released on Wednesday.”

    http://www.bnn.ca/there-are-serious-consequences-suspected-canadian-mortgage-fraud-spikes-52-1.648005

  232. @ Jame, I also think it would be hard to have a net loss. Using conservative numbers.

    Suite: income over ten years subtracting tax and expenses: 120k
    Appreciation: over ten years: 500k
    Capital gains paid at sell: 100k (roughly 20%)

    You also wont have as much appreciation with no suite. And, that is 100k at dollar values ten years later vs the income garnered in the now.

    I think renting the suite still makes sense especially if one is obviously built into your house. CRA might not care if you didn’t rent it.

  233. @ gwac if true that’s pretty nuts. A developer burning down a heritage house because they couldn’t demo it. Not so good for relations with council….

  234. In the folio the CRA says the following: http://www.cra-arc.gc.ca/tx/tchncl/ncmtx/fls/s1/f3/s1-f3-c2-eng.html

    2.59 It is the CRA’s practice not to apply the deemed disposition rule, but rather to consider that the entire property retains its nature as a principal residence, where all of the following conditions are met:

    a) the income-producing use is ancillary to the main use of the property as a residence;
    b) there is no structural change to the property; and
    c) no CCA is claimed on the property.

    2.60 These conditions can be met, for example, where a taxpayer carries on a business of caring for children in the home, rents one or more rooms in the home, or has an office or other work space in the home which is used in connection with business or employment.

    Note the wording is different (anciliary use rather than a reference to size) and the example is of renting a few rooms. I think a self contained suite built for the purposes of rentals clearly does not fall into ancillary use, while renting out a few rooms on AirBnB would. You’re going to have a heck of a hard time convincing the CRA that putting in a separate kitchen is not solely for the purposes of generating income.

  235. “Relatively small” would probably apply to mine, and likely Marko’s given the size of his house?
    Agreed, the lack of clarity is kind of ridiculous.

  236. Hmm. Good point Ash. I still think that “relatively small” would not apply to most suites in Victoria but you’re right it still isn’t 100%. Frustrating. Why can’t they just set some clear rules?

  237. “This is getting pretty specific”

    Ha ha, yes. I have friends in the exact situation I’ve been describing who are actively trying to decide if they just skip reporting rental income for this first and only year of having a tenant. They think that the tenant won’t file taxes at their address so they’re contemplating rolling the dice.

  238. “Barrister on January 10, 2017 at 4:46 pm
    Marko:

    Smart move to get rid of the rental.”

    If it is in fact determined that CGs apply to the typical Victoria suite, I won’t be impressed that I had a rental during a time of huge jumps in assessed value. But personally I won’t rush to get rid of my tenant. My view is that there’s a time value to the rental income that I’m putting to good use today, whereas the tax liability waiting for me ~20 years from now when I sell will be somewhat diminished by the effects of inflation. Not the case for lots of folks looking to move up/down the property ladder in the near term of course.

  239. Agreed Vicbot, best to be honest with CRA or it could come back to bite big time. I know of a couple of people who don’t claim their suite rental income – seems insane to me given that, as Leo said, your tenants are probably filing returns with CRA…

  240. Just had another read through of the cra example. To me it does nothing to clarify the CRAs position on what constitutes a pricipal residence. It is helpful instruction on how to fill out a form IF they don’t fully qualify for the principal residence exemption. Again, I don’t see anything in the example that’s new information. Duplexes have always clearly been on the CG side. Same for owners claiming CCA.

    The three criteria that determine whether your suite is part of your principal residence (or not) remain unchanged. See below from: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns101-170/127/rsdnc/chngs/chngngprt-eng.html

    “However, you are not considered to have changed its use if:

    your rental or business use of the property is relatively small in relation to its use as your principal residence;
    you do not make any structural changes to the property to make it more suitable for rental or business purposes; and
    you do not deduct any CCA on the part you are using for rental or business purposes.
    If you meet all of the above conditions, the whole property may qualify as your principal residence, even though you are using part of it for rental or business purposes.”

  241. A friend of ours made an innocent mistake on his taxes for several years and had to pay large penalties and interest, so I’m always surprised if anyone wants to risk it with not reporting rental income – the penalties and interest can easily dwarf all the years of rental income.

    Here’s a good article on how far back the CRA can go to reassess your taxes if they suspect fraud – it appears to be indefinitely:
    http://taxsolutionscanada.com/cra-reassessment-how-far-back-can-it-go/

    There’s a way to make voluntary disclosures to avoid penalties:
    http://www.cra-arc.gc.ca/voluntarydisclosures/

  242. However the example chosen is an up and down duplex…not a house with a suite that could be taken back by the owner. I’m not trying to split hairs but…

    Interesting point, Ash. Things may not be clear yet.

  243. Glad to see CRA issue more specific guidance. However the example chosen is an up and down duplex…not a house with a suite that could be taken back by the owner. I’m not trying to split hairs but I think given the CRAs 3 criteria for determining if CGs apply that a duplex with separate addresses etc could receive different tax treatment than a house with a suite? Especially if the suite is quite small?

  244. Can someone explain how taxing capital gains on houses with suites is going to help the housing crisis?

    The CRA is not responsible for fixing the housing crisis

    What if you knew for sure that your tenant wasn’t filing their taxes from your address?

    This is getting pretty specific 🙂

  245. “And if you don’t declare income they could easily figure it out from how many people are filing their taxes from your address. I wouldn’t risk trying to fly under their radar, it could get very expensive.”

    What if you knew for sure that your tenant wasn’t filing their taxes from your address? Would you risk it then? (Most students, for instance, file their taxes using their parents’ addresses since they move around so frequently.)

  246. Can someone explain how taxing capital gains on houses with suites is going to help the housing crisis? Seems like anyone that could make 1 or 2 additional suites will not do it now. They are causing a housing crisis with these rules.

  247. What if you only rent the suite out some of the time, but not all of the time? What if your suite is a vacation rental and not rented to a permanent tenant?

    I believe it depends on whether you can convince the CRA that it is occasional use and doesn’t change the character of the residence as a primary residence. AirBNB of a suite that makes significant income? Probably counts as rental. AirBNB a spare room every third Sunday? Probably incidental.

    Does that make any difference? What if you have a suite but don’t rent it out at all, but don’t use it either?

    The court case that CuriousCat examined here https://househuntvictoria.ca/2016/10/07/do-you-have-to-pay-capital-gains-tax-on-your-suite/ showed that case where a detached suite was not used and the CRA still determined that capital gains were due.

  248. How many people out there actually have legal suites that they’re telling the CRA and their local municipality about?

    The CRA doesn’t care that your suite is illegal from the municipalities point of view. They also don’t care if the suite is up to code or not. They will see you have a suite from the income you declare. And if you don’t declare income they could easily figure it out from how many people are filing their taxes from your address. I wouldn’t risk trying to fly under their radar, it could get very expensive.

  249. Mansion just flipped in the Uplands after 24 months for $1.215 million profit….no CG, go figure. Want to rent a suite in your Oaklands home? You have to pay up.

    As usual one level of government acts against the interests of the other. Local and provincial government trying to improve the rental situation, feds discourage rentals. Feds try to put a lid on the housing market, provincial government hands out money to goose it.

    Isn’t it great when one set of taxpayer dollars is used to counteract the other set?

  250. You can end up paying more in taxes than you got from the rental.

    Not likely but you can certainly obliterate your profit. Once you’ve covered costs, margins are pretty thin on rentals in Victoria if you take everything including opportunity costs into account.

  251. So if you have a suite in your house that is ‘unauthorized’ and the CRA doesn’t know about it, you don’t have to pay capital gains when you sell b/c they never knew about it in the first place?

    How many people out there actually have legal suites that they’re telling the CRA and their local municipality about? How many are ‘illegal’ or ‘unauthorized’ and are they telling the CRA about the rental income in the first place? This is esp. true in Oak Bay where no suites can be legal, yet we all know that about 1/3 of the homes in Oak Bay have suites! Most of the homes we looked at in Oak Bay or Saanich or Victoria had ‘unauthorized’ suites. Even in communities like Victoria or Saanich, where suites can be legal, many are not anyway as owners don’t want to bother bringing up to code. So, how many people out there are telling CRA about this in the first place?

    What if you only rent the suite out some of the time, but not all of the time? What if your suite is a vacation rental and not rented to a permanent tenant? Does that make any difference? What if you have a suite but don’t rent it out at all, but don’t use it either?

  252. James:

    You can end up paying more in taxes than you got from the rental.

    Based on my calculations at 4% property appreciation if you are renting a suite at $1,200 per month depending on your income tax bracket and size of suite you could be paying a total of $1,000 in tax per month (between income tax and CGs on sale). If you factor in higher property appreciation you end up at a net loss.

    I’ve stopped renting my two-bedroom suite. It’s a shame as it’s less than two years old and I went all out on it (50′ linear fireplace, quartz counters, its own laundry room, etc.) and it would make a great place for someone, but no point in renting with these rules.

    Going to put a huge TV down there and use it as a rec room.

    Mansion just flipped in the Uplands after 24 months for $1.215 million profit….no CG, go figure. Want to rent a suite in your Oaklands home? You have to pay up.

  253. @Hawk,
    They keep changing the scale though… So it can keep growing indefinitely. But, yes, eventually wages need to also grow (the true inflation that makes rates go up). This mechanism of inflation is necessary to deflate the massive debts our overlords create among each other….

  254. How can it result in a net loss? You’re getting money from the rental, and money from the increase in the price of the home. At no point are you losing money there.

    There’s a famous saying here. 1 in the hand is worth 2 in the bush. Stop banking on Victoria prices outpacing people’s ability to buy. It’s just not going to happen.

  255. Interesting comment out of CMHC’s Siddal :

    “Alexander MacDonald ‏@alex_macdonald 5 hours ago

    Siddall on broad market: Pay attention here. Trees don’t grow to the sky. It likely won’t, but if this goes badly, it will go “badly badly””

  256. it seems possible to actual end up at a net loss from renting depending on the amount of appreciation.

    Agreed. The difficult thing to anticipate is of course the appreciation rate. It may make hardly any difference, or it may be huge and completely destroy the economics of the suite (which is already very tenuous in Victoria).

    If i understand it right, if you had a tenant for the past three years you will have to pay capital gains whenever you sell. It is not just from this point forward but also includes all previous rental years.

    Correct as far as I can tell. The thing is for the CRA this is not a new rule. It is simply a clarification of the previous rules and now they have a better way to track it. Hence no problem with having it apply retroactively because technically it was always in place.

  257. Curious Cat:

    Thank you for all the hard work and valuable information. My next door neighbours were thinking of adding a basement suite. This mornign tthey just ditched the idea and reading your piece about the capital gains.

    After including the income from rent, and paying tax on it, then paying capital gains when you sell the property it seems possible to actual end up at a net loss from renting depending on the amount of appreciation.

    I wonder how many real estate agents forgot to mention that the “mortgage helper” could potentially cost you money in the long run. On the other hand you did get the joy of putting up with an annoying tenant.

    If i understand it right, if you had a tenant for the past three years you will have to pay capital gains whenever you sell. It is not just from this point forward but also includes all previous rental years.

  258. Thanks again Curious Cat for the response in the last thread. I started reading about that election last night and found this:

    https://www.ctf.ca/ctfweb/EN/Newsletters/Canadian_Tax_Focus/2016/1/160108.aspx

    The key point is that subsection 45(3) does not simply defer taxing the gain accrued up to the change in use until the future disposition of the principal residence; instead, it erases the deemed disposition entirely and applies a formula to determine, on the ultimate disposition of the property, the proportion of the total capital gain that can be sheltered by the principal-residence exemption.

    In simplified form, a taxpayer’s capital gain on the disposition of a principal residence is calculated as
    A − A × B / C

    where A is the gain calculated without reference to the principal-residence exemption; B is 1 plus the number of taxation years for which the property was designated as the principal residence; and C is the number of taxation years during which the taxpayer owned the property.

    Sounds like maybe making that election isn’t always the best idea, especially if you anticipate further appreciation?

  259. My understanding is you can get a market appraisal, but we did this and there is a formula CRA uses to allocate the gain/loss per year of ownership that is calculated when you sell if you defer tax payable on deemed disposition until then. BC Assessment would not likely be adequate if challenged imo. Our accountant did this for us so maybe curiouscat has a better take on it.

  260. If CRA states this related to “deemed dispositions” …
    “Even though there was not an actual sale, there can be a capital gain or, except for depreciable property or personal-use property, a capital loss.”

    … is this not the case with rental property where there hasn’t been any CCA claimed? I haven’t read all the new rules though, and maybe it’s only related to investment properties.

  261. if your assessed or appraised value at the time you stopped renting your suite is lower than your purchase price, it would be a capital loss – so you’d think you could apply that loss to any other capital gains you’ve had

    No, you cannot claim a capital loss.

  262. VicRenter, good question, because if your assessed or appraised value at the time you stopped renting your suite is lower than your purchase price, it would be a capital loss – so you’d think you could apply that loss to any other capital gains you’ve had, but that’s a question for CuriousCat.

  263. From CuriousCat’s comment in the last post:

    “Assuming the reporting requirements are the same, you would need to have a good idea of what the value of the property was when you stopped renting it. A property appraisal would be ideal, but if you want to use BC’s assessment, I don’t see why that couldn’t work. The longer you hold the property, the longer you go from rental to principal residence, the harder it will be for CRA to argue against your “valuation”, as long as it’s reasonable. For example, you purchase in 2015 for $500k. You rent out the suite for 1 year. You own the home for a total of 10 years. You sell in 2025 for $1 million. You indicate that the value of the house was $520k after one year, 50% was rental, and report a capital gain of $10k. I would bet CRA would not hassle you to prove the value 9 years ago was not as you stated. But if you rent it for 8 years and sell it year 10, then the gain will need to be more reasonable. Make sense?”

  264. It’s a form of QE. Forced inflation and economic stimulus…. Cynicism aside I think it’s a fair move for those that have been in their house for some time. Take the suburb I’m living in. It’s a low end burb built in the 60’s. It’s now a million dollar neighbourhood. Is it fair to those that have been here for decades? To say they could sell and move is not right either. The gov could have chose to keep assessments reasonable. There was no need to raise them to “reflect the market”. This is a purposeful move to boost peoples feeling of wealth. Getting a letter in the mail telling you your house is worth 250k more than last year will do that….

  265. @totoro: Right, but CuriousCat stated that if you only rent the suite for a year then the CRA will use the value of the house when you stopped renting to determine the capital gains due on the suite. I’m just wondering how a purchase price that’s higher than the next year’s assessment (which will be the case for most people who bought in 2016) would affect things.

  266. Capital gains are only taxable when you sell or if there is a deemed disposition. Assessments have nothing to do with it.

  267. No it is the purchase price subtracted from the eventual sale price that determines the gain or loss. You pay nothing until the year you sell.

  268. If you bought a house in 2016 for, say, $700,000 (BC assessment value $550,000) and then the 2017 BC assessment value is $650,000, would you have to pay capital gains on your suite? (This is assuming you rented it from 2016-17 and then never again.) What I’m trying to ask is if the purchase price might be used for 2016 and the assessed price for 2017. That would obviously make it look as though you’d lost money rather than gained it.

  269. Yeah those poor owners of 1.2 to 1.6M houses. Good thing they can now save $570/year again! What utter nonsense.

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