CSA GLEE TERE

MIKE GRENBY’S MONEY TOON

HA! ONE MORE
TENANT —— WE'VE
COVERED THE
MORTGAGE !

dollars

and sense

INVESTING IN revenue
property? Go first for income
to cover expenses, then look
for capital gains.

Today, housing prices have fullen
in many areas, But barring 4 massive
oversupply of rental accommodation
or a prolonged depression, the rent
you collect should remain fairly con-
stant. Over the long term, the value
of well-chosen property should
match — and ideally exceed — the
inflation rate:.In ie meantime, the

PEE NA OLE

THAT MAKES
TWEWE,NOW,
WHERE WILL
You Put

tenant is paying off your mortgage
and covering other expenses.

Equally important, Revenue
Canada (RC) is more likely to accept
aclaim for both rental income losses
and also a lower-taxed capital gain
when you eventually sell if your rev-
enue property has that all-important
“reasonable expectation of profit.”

A woman bought a rental home
for $14,000 down, with a $139,500
first mongage and a $26,500 second
mortgage. Over the next three years,
she had difficulties finding tenants
and the place ended up vacant. She
deducted her rental losses from her
other income during those three
years. But RC disallowed her claim.
RC and, when she appealed the Tax
Court of Canada, said she failed to
show the property had a reasonable
expectation of profit. She hadn't
done any analysis or received advice
to indicate revenues would exceed
expenses,

In another case, a couple bought
a condominium financed by a mort-
gage for 85% of the purchase price.
RC also disallowed their claim for
rental losses. They “lacked training

T PERSONAL INJURY |

Free (nicial Consultation
Douglas W. Lahay
“ .CLARK, WILSON

HARRISTERS & SOLICITORS

wee A LOVELY
WALK-IN CLOSET
BUT WHERE'S
THE ROOM ?

Investors
Must show
a ‘reasonable
expactalion
of profit
4o get tax breaks,

in the renting of real estate, the unit
was under-capitalized” (because of
the high debt), “and their income
projections were not reasonable.”
reported CCH Canadiait’s Tax
Topics newsletter, Once again, “they
had no reasonable expectation of
profit from the unit, so the losses
quite simply were not deductible.”

This “income for profit"
iipproach is just as important when
you sell an investment property for
more than you paid. You want this
profit considered as a capital gain
(75% taxable) instead of full income
(00% taxable). ‘To allow this tax
(reatment, RC wants to see you
bought the place with the idea of
generating a profit from rental
income — not just that you hoped to
flip the place to make a profit/capital
gain from an increase in value.

Mike Grenby is a North Shore-
based columnist and independent
financial adviser; he will answer
your questions in this colunn as
space allows - write to him clo 244-4
Haywood Avenue, West Vancouver,
B.C. V7V 1Y1.

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