**Transcripts are auto-generated.

Erwin  

Hello and welcome to the truth about real estate investing show. My name is Erwin Szeto where we discuss many stories and lessons around real estate investing. So together we grow as real estate business owners towards our goals of financial peace, avoid landmines, scams and con artists. As our regular listeners know, it is not all sunshine and rainbows out there. The truth about real estate is these are tumultuous times, many novices who were over leveraged to aggressive investing with their ego, instead of what we hear teach our clients a pragmatic, measured approach, incorporating best practices we’ve developed in my nearly 20 year career as an investor, we’ve transacted over $400 million in real estate, and that’s almost entirely investment properties, that positive cash flow, it’s actually translated into among our clients, we have about 45 self made millionaire clients who’ve made that million or more in income properties. So I’ve excluded their homes here at Island real estate. We’re like financial advisors, but real estate investing focused, and I actually have clients who have made again, not only a million or more dollars, but they’ve done so conservatively, systematic, mainly with cash flow. And honestly, it’s quite boring. One of my millionaire clients reported back to me after attending one of these newer coach groups, coaching groups that are meet up where they pitched, what the pitch was to get rich quick, by buying multiple properties in a short period of time, with expensive private money, and flipping and Burr strategies and coaching, very expensive coaching, you know, easily five more than in the five figures a year. Unfortunately, it’s the same groups that are producing bankrupt clients, these groups are great at making money for themselves. Even if you have a handful of bankrupt coaching clients, I think that’s way too many. Especially when I think it’s extremely avoidable. As an insider to the investment investor community. I’m connected with some of these students, actually many of these students and coaches and former coaches, and we’ll be hosting some of them on this podcast over the next few months. So do keep in mind, though, those who did play conservative those who’ve been, you know, having cash on the sidelines or saving up for these times, folks who have great credit will be taking advantage of the increased number of failed speculators, these power of sales and distressed sellers hitting the market this spring market. Honestly, it’s our clients who have been taking advantage of this market so far. For anyone who came on our tour this past weekend, you saw the properties that our clients picked up for great deals, and will continue to do so, you know, will actually continue to build intergenerational wealth, like these other groups that are advertising, while they undergo rebranding, one of these companies recently just sold to another guru, not saying all gurus are bad, but we’re seeing some consolidation shake up in our community, especially among the coaching companies, we’re seeing changes in leadership. And, you know, straight up I mean, hearing stories that some of these groups that customers are demanding refunds, you know, 10 $30,000 on whatever they paid, because honestly, they’ve gone broke and the teachings of those courses and coaching, so anyone who wants to continue along in this journey to learn the truth about real estate investing, specifically how to actually be successful, Jerry and I will be co hosting investors meet up in Whitby, Ontario, followed by an education tour, no pressure as always, it’s a group comfortable. No, no pressure is always tour of income properties and a mastermind lunch on Saturday, March 25. This will be our first time ever hosting in Maryland meeting in the Durham Region. And if this goes well, we’ll make it a more regular occurrence. The cost is nominal. All profits go to our charity the Hamilton bash brigade to outfit poor school children with warm winter wear. Cherry will be presenting on the absolute must knows for the tax season of 2023. Sherry and her accounting team at real estate tax tips has been working away with their 500 Plus real estate clients. And they know what all the Frequently Asked Questions are and the teachings that are clients must know about. You don’t want to miss this, as there honestly is a lot of confusion around the two new tax rules from our lovely Trudeau Government. And yeah, you know, I miss it. My team and I will be giving an economic market update, followed by how to best profit from these opportunities from the Oshawa to Kingston, Ontario markets with interest rates at or near peak and a flood of tar sales coming on the market this spring. This could very well be the bottom of the market. Again, my crystal balls no better than anybody else’s. But again, we’ll go over economics and market update on Saturday 25th March 25. So yeah, no demand. So it’s no surprise for me that we’re already seen the demand is greatest in the sweet spot that we invest in specifically. And we’ve always done that since honestly started in 2005. So save the date Saturday, March 25. It is my birthday weekend, but no rest for the wicked and honestly There’s nothing I enjoy better than helping hardworking Canadians create financial stability and peace in their lives. on to this week’s show, I had no idea how many new tax rolls be investors have to deal with this year. You know, thankfully, one of the greatest wealth hacks I can I can share from my experience is to marry your accountant. I thankfully did. The underused housing tax is especially concerning as extremely new, the forms only became recently available. And I’ve spoken to many pros real estate investment pros out there who don’t understand it either. I understand it now. Thanks for doing this interview. What’s worse is the penalty is 5000 to 10,000 for not filing. In this specific underused housing tax filing applies to many, many of us in the investor community. And again, understanding is not clear. And even though many of us are excluded owners, I am an excluded owner, thus having no liability, I still have to file and if I have to file I imagine there’s many of you also who out there who have to file. I’m not an accountant, though, please speak to your accountant, I did happen to invite my lovely wife cherry Chan, CPA ca who happens to be the most in demand real estate count speaker out there to share some of the top tax changes we face in 2023. So Cherry does break down some of these tax tips on her YouTube channel as well in more detail, so make sure to subscribe to her channel along with the other honestly 10,000 YouTube subscribers, YouTube, when you go on YouTube, just search Real Estate Tax Tips. It’s actually one word real estate tax tips on YouTube. In case you’re curious, yes, cherry is still accepting new clients. That is honestly the number one question I get is cheering accepting new clients? Yes, they are accepting new clients but not for the not for 2020 twos filings. Right? Because they’re already full swing in the tax season. They’re already beyond forcing swing into tax season. So I’m not sure how much longer that is, but they’re accepting new clients admin at CC cpa.ca. Is the email address for your inquiries. Should you want to work with Cherry and her team? Again, it’s admin at CC cpa.ca. In case you’re wondering, the domain is an acronym for cherry Chan, Chartered Professional accountant.ca. Please enjoy the show. Thanks, Cherry, what’s keeping you busy these days?

Cherry  

Everything. I think the biggest thing for me is the underused Housing Tax Act, which I think is shattering the entire accounting world or at least in my business because I routinely work with people who are require based on this legislation who are required to do the filing and they just released the filing Form. And that’s why we’re like crazy ly scrambling to put the system together, put the human resources together, put everything together to make it work.

Erwin  

Ever seen the look on my clients face Justin who is an accountant as well, and he had no idea. He explained this to him what this was.

Cherry  

Yeah, it is it is a complicated thing, although the intent wasn’t to have any requirement for Canadian resident or Canadian citizen, Canadian permanent resident and Canadian citizen to do the filing because they would be most likely exempted from paying the tax, but somehow the way that the legislation is written now a lot of Canadians and a lot of Canadian corporations would be required to file the return.

Erwin  

So anyone that owns any property,

Cherry  

no so it’s only applicable to residential properties that are triplex and under and if you own a commercial property that has three units and under you may also be doing on it depending on the use of your residential portion in comparison to the commercial portion. So those would be the affected properties owner. So like single family home condos, but only residential condos, not industrial condos or commercial like this one that we’re in Yeah, those would be exempted, but it’s residential condos, semi detached house duplex triplex row houses. So townhouses. So

Erwin  

you’ve never vanilla homeowner

Cherry  

was event Nila home owner,

Erwin  

the majority of Canadians that are just regular homeowners that don’t own any investment property,

Cherry  

um, maybe maybe not. So depending on if they are an affected owner or not. That’s an affected owner. So affected owner includes a Canadian corporation private corporation, partnership to a certain extent it may also include our joint venture relationship. So for example, if you have elderly parents and your elderly parents to help them taking care of the whole house, the elderly parents say hey, I need you to I need to add your name to the title of took off my house because it helps me to handle all the affairs of the house but you don’t truly own that property. You’re just being added for the purpose of helping out the true owner is still the parents with this type of arrangement. You’re essentially acting as a trustee to own be on title in trust for your parents. And under that scenario. because you’re a trustee, you are now required to file a return. Okay,

Erwin  

so I don’t think that’s a very common case,

Cherry  

it is common because a lot of the elderly Canadians would have their kids on their primary residence house to help them.

Erwin  

Okay, that’s a whole other ball of wax that I don’t want to get into.

Cherry  

I know it doesn’t quite a fight a lot of because most people

Erwin  

will think automatically just do a power of attorney instead. But there’s benefits to both. And we’re again, so the conversation, I don’t think we need to get into that today.

Cherry  

Well, but it’s applicable as of December 31 2022. So if your title, your name is on title, December 31, then you have a filing obligation.

Erwin  

So what if, like Adam, who was on title for his home? Yeah, does he have the file?

Cherry  

Well, if he is the sole owner and sole beneficial owner of the home, he’s not acting as a trustee, then he doesn’t have to file. But for average real estate investors that you and I deal with, they do a lot of joint venture. If you’re in a joint venture relationship, you are the one that’s on title, and you have a joint venture partner that’s off title than you are all of a sudden a trustee, then you would need to do the filing. Okay. So when we trustees? Well, that’s what they say, right now, the trustee has to do the fire, whoever that’s on the legal system. But there is a second part that talks about the legislation has a second part that talked about who are the owner, if you are the trustee, you are owning the property on title, you’re the one that’s on title, and you’re only in trust for the corporation, the corporation is also the owner. So if you can be identified as an owner, because you’re a Canadian corporation that I mentioned it, which would be an effective owner, you would so the corporation would still have the filing obligation. So the corporation has it and if you’re the one on title, the individual would also has the filing obligation because the individual is acting as a trustee.

Erwin  

Okay, so trustees and corporations, is that we draw a line in the sand

Cherry  

and partnership, or partnership. Yeah. When they’re non Canadian, as well, but then we don’t have a lot of non Canadians listening to the show. So

Erwin  

yeah, now many of our clients are non Canadians. Yeah. Okay. So non Canadians, trustees, corporations, partners, partners for investment purposes, or even like wedded partners.

Cherry  

So they specify as partners in the partnership, I always like on my YouTube video, I actually mentioned the house that we kind of owned together. The one the single family townhouse that I’ve always owned, it was my primary residence in the past. Throughout the years, I’ve always reported the income and expenses on my own personal tax return. But throughout the years, we refinance that property a couple of times. And that property and through that refinancing process, the bank require your name to be added to title, you’re now a trustee. I’ve always reported that 100% income and expenses, there is no change from a tax perspective. But you’re added for the purpose of mortgage, you’re really owning it in trust for me. So all of a sudden, you have the filing obligation, because you’re on title interest for me. Now, vice versa, right? There are a lot of people couples, that one spouse, the high income spouse is on title, but then the reporting is done by the husband and wife, both both spouses together, then all of a sudden, to whoever that’s on title is now a trustee. I don’t know if that makes sense. Let now that you understand the magnitude of how crazy this UHT under US housing tax act implies.

Erwin  

That’s clear blowing up every accountants phone lines right now.

Cherry  

Really, a lot of them don’t know but the reality,

Erwin  

people are under listing, they’re gonna go they’re gonna go call a master account and what to do. Yeah, absolutely. But they’re all investors. So likely, almost all of them have to sounds like pretty much anyone who owns an investment property will have to file

Cherry  

not really no, let’s use an example. If you and I are in a joint venture together for one of our student rentals, we’re in a joint venture relationship together, both of our names are on title. And we eat we are joint venture, we’re not partnership, if we call ourselves partnership, then you have the filing obligation. But if you call yourself a joint venture, and your intention is joint venture, and you’re you demonstrate evidence that you’re operating as a joint venture, or you have a joint venture agreement sign, then there is no filing obligation, because I’m a Canadian citizen, you’re a Canadian citizen, you own 50% I own 50%

Erwin  

What is the objective of this new form?

Cherry  

So the objective funny, because this is totally what we just discussed is totally not consistent with the objective. The whole objective is to prevent foreigners to own Canadian residents and leaving it vacant, or operating it as Airbnb

Erwin  

holder on the hunt. Yes, this is the federal government.

Cherry  

This is federal government it affects Canadian wide. Okay.

Erwin  

Wow. So instead of asking you everyone who’s up anyone who’s foreign Oh, Wondering and anyone who’s offering Airbnb to to identify themselves. They’re asking everyone who is not.

Cherry  

Like, yeah, like it’s the same similar situation was like the Toronto vacant home tax, right? Like there could be a very small percentage of people who are leaving that Toronto home vacant. But they’re forcing everyone in the city of Toronto to report to the city of Toronto website that are you renting it out to someone, and on a long term basis, like, and this happens in City of Toronto happen in City of Ottawa has already been implemented for a long time in Vancouver. And then the government in British Columbia also sent out an other letter for them to do the filing. And this is on top of all of these completely different.

Erwin  

I’m sure the CRA employees love this idea.

Cherry  

Yeah, it’s crazy. I can’t even tell you how crazy it is because the form was really literally released middle of January. And the filing deadline is April 30. And throughout the last two weeks, they’ve released 13 Technical interpretation. Last two weeks. And what oh, what dates today, February 17?

Erwin  

What percentage of your clientele do you think are affected?

Cherry  

I think all of them

Erwin  

factored alive in 100%. Plus,

Cherry  

I don’t close to I don’t think it’s 100% of it by me five substantial amount will be affected

Erwin  

80%? Well, it’s 80%. That’s a lot sometimes imply

Cherry  

relationship, right? Like we wouldn’t know if it’s a husband who’s on title. And then the husband and wife are both equally reporting the income and expenses. That is really hard to identify. Right?

Erwin  

If you’re not doing their personal taxes, yeah, if

Cherry  

we do their personal taxes, even then, like it’s always been reported this way, we don’t necessarily go back to the original purchase agreement every single time. Right? How would you know?

Erwin  

So are your billings gonna go up?

Cherry  

Well, our liability is gonna go up. So for non compliance for individuals who doesn’t file and who’s required to filed and penalty is $5,000. For corporations who are required to file who and do not file, it’s the penalty is $10,000. And if you don’t file on time, they have the right to take away the exemption from the tax and the tax amount is 1% of the fair market value of your property. That sounds pretty serious. Oh, it is serious, which is why like it leaves the entire accounting world scratching our head, the whole legislation is about 89 pages long. Right. Right.

Erwin  

And you spoken to your friends in the industry as well, like, are they just as concerned as I am?

Cherry  

No, I am concerned, I think because it impacts our accounting practice so much every almost every one. I wouldn’t say almost everyone, I think 80 90% of them are affected. And we’re trying to figure out how to raise this to our clients effectively and efficiently. Because we’re also in the middle of tax season, personal tax returns, that line is also April 30. This under US housing tax form also has to be filed by April 30. And they just released the information. So we’re like scrambling to get this thing done and get the message across the most common misconception that our clients have. And they wouldn’t even open my email because it says under US Housing Tax Act, and in their mind, they said, hey, my houses are all rented. They’re not underused, and therefore I don’t need to know about this. But it’s the opposite. You just have to filing obligation, even though you’re exempted from paying the tax. And then the second misconception is that hey, like I already did the City of Toronto, or city of Ottawa or Vancouver, reporting, this is the same thing. So it doesn’t apply to me. That’s not true.

Erwin  

Most governments don’t talk to each other. Yeah, those people

Cherry  

are actually different type of filing this under US Housing Tax Act is federal, all across Canada.

Erwin  

Does the government just want to know who has Airbnbs is trying to track it? I don’t think it is. limit them.

Cherry  

I don’t think it’s Airbnb is really targeting foreigners. Fascinating. But then if they they rent out their property on a long term basis, then they will be exempted from the tax. They just need to do the filing as well. But currently, the way that we’ve seen it is that if the foreigner owned property and operated as an Airbnb, short term rental, they will have to pay the tax or leave it vacant, they would have to pay the tax versus the tax 1% of the fair market value. That’s annual, every single year.

Erwin  

That’s not cheap. How many people know about this,

Cherry  

or no, i Nobody. I think most accountants were like, I don’t know if most accountants didn’t

Erwin  

know. So we’re just being thrown under the bus. I

Cherry  

know about it because we are in this particular business. We have to know it so This useless? Well, the truth is it was announced in budget 2018. It’s effective January 1 2022, for properties that you own as at December 31. If you don’t owe it as of at December 31, you don’t have any filing obligation. So, but it’s just the form hasn’t been released until middle of January of this year. So that’s where the scrambling come in.

Erwin  

Right. Yeah. More work. Yeah. Doesn’t seem fair. No, but they released the form in the middle of tax season. Yeah,

Cherry  

exactly. And the form is not easy to understand. People likely to make mistakes. Yeah. So you’re required to try your best to fill out the form as well. If not, then they could also impose the same penalty.

Erwin  

This is great. Yeah. Instead of the CRA going after all the government stimulus money that was given way without any auditing,

Cherry  

although they are going after those two, so they’re going after the wage subsidies, they’re going after the not so much the CBO alone, but that wage subsidy, the syrup as well, they are going after those

Erwin  

didn’t know much about it as like, what are the penalties are they looking for? Everyone has to record it. First of all, everyone has reported right, all the business that the report the wage subsidy and individual sales report, Serb income

Cherry  

syrup has to be reported as income wage subsidy has to be reported as income. I don’t personally have any experience working with that wage subsidy audit, our exposure is relatively limited to it, our clientele don’t have a lot of those. So we’re not really exposed to it. So it cannot really tell you much our experience with the insurance company that we work with, who provides insurance to accounting firms clients, they’re telling us a lot of their other accounting firms are, like scratching their head, pulling hair out on going through these audits. Lovely decoy after it,

Erwin  

we should have our detailed how much how the word is questionable. The judgement was to hand up so much money and when love is gonna be last. But anyways, what else? All right. Anything else we didn’t cover? I’m talking about on this vacant home tax wherever it’s called.

Cherry  

No, it’s under US housing tax and used. It’s not vacant home tax, you get people confused. Now, one thing that I do want to mention that people have a lot of confusion, just because you don’t have to pay the tax doesn’t mean that you have no filing obligation. The penalty that I mentioned the $5,000 per individual $10,000 for a corporation, they are imposed on non filing. So even if you have no tax to pay, so using us as an example, our house,

Erwin  

well, long term and everything. Well, maybe we’re Canadian, so

Cherry  

to your exempted anyway. So you only interest for me, our Toronto townhouse, we file we do the filing, there is no tax to be paid. It’s just that you have to do the filing. Good Lord. That’s it. Like there’s no nothing to be paid because you’re Canadian. You’re owning it in transport and other Canadian. So there is no tags were exempted is just that, unfortunately, we still have to do the filing. So some people some of our clients also have joint venture partners and their joint venture partners, Comptroller is telling our client, Oh, you don’t have to file it. Look at the screenshot, you’re exempted? Well, the reality is you’re exempt. It doesn’t mean that you don’t have the filing obligation. Oh, no, no, you have the filing obligation. You just you are exempted. You just have to file an obligation.

Erwin  

Fascinating. Yes, all my clients were exempt. But there’s this but there’s all this admin work that has to be done exactly. For no reason for no reason. Oh, yeah. None of them are the part of the problem. Because

Cherry  

if you think about it, the objective of the legislation is to prevent foreigners from leaving their house vacant or their residential property vacant and does reduce the number of properties available for local Canadians to live. But now the whole legislation is written in a completely different direction, that everyone, almost everyone in our practice would be affected. Whose bill

Erwin  

is this? You said 2018. So I think that was still liberals.

Cherry  

I think we’re still liberals. So

Erwin  

I just want to know, so I know where to direct my anger. All right, that was a mouthful. Apologies to the listeners. We’ve scared and all the accountants whose phones are burning up right now.

Cherry  

Yeah, tell us about that.

Erwin  

All right, what’s the number two thing people need to know about taxes in 2023?

Cherry  

I mean, 2023 is a huge change year there is something coming up in the pipeline. There is something that’s already effective. As of now, the biggest thing is anti flipping rule. And the flipping rule is effective January 1 2023. If you own a particular residential property again under 365 days, and you sell it within three years is exactly five days after you purchase it, then the profit that you make are automatically deemed business income. Now a lot of people would have to miss understanding that when you purchase a property, and when you resell the property, you either do not need to pay tax if you moved into the property or you pay capital gains tax on it, when I talked about capital gains tax is 50% taxable. So people are under the misconception that it’s either tax free if you lived in it before, or it’s only 50% taxable. So if you make $100,000, only $50,000 is being taxed, and you pay maybe $25,000 of tax now, but the reality is that there are certain rules that it has always been around those rules, those considerations CIA would look at to determine whether the sale of a property is considered capital in nature or business. If it is business, then 100% of the profit that you make is considered income. Whereas if it is capital in nature, then you will then go into Hey, did you live in the property before? Or are you using it as a long term rental, then the sale would then be considered capital in nature and 50% taxable if you’ve lived in the property for the entire duration of ownership, then 100% of it would be likely tax exempt. So those are the original rule. Now CLA over since 2015, they’ve put a taskforce together, they put extra effort to audit people in the real estate sector in Ontario, as well as in BC, they’ve since recover over a billion dollars in Ontario billion dollars in MPC as well. And a large number of audit is evolving around people flipping properties or claiming that they move into the property and then claim primary residence exemption and not pay tax on the sale of the property. Meanwhile, they’re really operating a flipping business. So they’re trying to target those people, the way that they have always been targeting those people is by looking at transactions that happened 365 days or less within the purchase day. Now, those are low hanging fruits, because the consideration that they’ve gone through they would go through is that how often do you do the trading? How long would you have owned the property for the shorter the duration of ownership, and the more frequently you purchase and sell the residential property, the more likely you are viewed by court that you are doing a business rather than doing a capital long term investment transaction. And so they’ve always tried to target the low hanging fruit. And the low hanging fruit is under ownership duration under 365 days. But that’s not enough, the government decided, hey, this is not enough. CIA want to make it even easier. If you now they impose this rule, under 365 days, for sure all the profit is called business income. Unless you fall under one of the exemption the exemption would be like someone joining your family leaving your family if you pass away, you get fired, or there’s personal safety, there are a bunch of other exclusions to this all sound reasonable, yeah. Now, but then I’m giving you an example. If you move into your property, you own this particular property, and you really find that it’s, it’s a lemon to work with, and you uncover a bunch of issues that you didn’t know. But then someone walked in and say, Hey, I am interested in buying your property for a profit, you’re like, Well, like I wanted to get rid of it as much as soon as possible. Your original intent is really to, you know, buy it, and then rent it out. Now all of a sudden, someone come along, within 365 days, you sell this salad to this person, then 100% of the profit that you make would be taxable. Now another example is that if you were to purchase a property, and you move into the property, now, I don’t know how you prove personal safety, maybe it’s not personal safety. Let’s say you move into the property and you’re like, wow, my neighbour really stink, or my neighbour smokes a lot. And I hate that smell. And I need to sell this property because my neighbor’s smokes. And I can’t tolerate it’s not quite personal safety, you don’t have documentation to prove it. And there’s no it doesn’t fall under any of the exclusion. That unless you get fire or you’re getting married, then all of a sudden, if you start you were to sell within 365 days, the profit that you make from the sale of the property would then be considered 100%. Taxable, or fringe case but yeah, yeah. So those would be the situation that could potentially get caught under this rule that would be legitimately for other reasons, right? I want

Erwin  

to find a lot of construction condo investors good caught in the anti flipping anything.

Cherry  

So that’s an other new rule that came out actually last year, May 7 2022. So they talk a little bit about pre construction, not necessarily condo pre construction home when this new anti flipping rule also got introduced. They also clarify with the condo pre construction condo assignment sale for anyone who purchases the commit to purchase the pre construction home and decide to sell that contract. So, yeah, within 365 days after you purchase a property, after you purchase the you enter into the agreement of purchase and sale because when you enter into the agreement of purchase and sale on to purchase a pre construction home, it could take a couple of years or 6789 years before it materialise. But if you you resell that contract, within 365 days, after you enter into the agreement of purchase and sale, then the profit that you make would that be considered 100% taxable majority of the clients would not be doing that. Now. But then on the other hand, if you close the property and brand new home, and within 365 days you sell it, because you know like with condos, especially like before you close the property you already take possession of the property, you are renting it essentially. So the moment that you close the property, you may want to sell it already. But the reality is, if you sell it within 365 days, the transaction happened in 2023. Onwards, then you’re caught under the same rule as well.

Erwin  

And then what about assignment fees? Is there HST on that?

Cherry  

Yes. So I did a great YouTube video. I have to I have to promote myself.

Erwin  

flagging your YouTube Oh, no. No.

Cherry  

Tax Tips. Yeah. youtube.com/real Estate Tax Tips,

Erwin  

What can they search to find? The trustee is on assignment.

Cherry  

So you should cherish him. And then it’s there. Okay, it’s assignment and HST and everything. So essentially, the rule came into play may 7 2022. What it means is that any assignment fees assignment deal, assignment fees that you earned, for transactions that close after May 7 HSC, is applicable regardless of your intention. So HST will be taking charge on the assignment fees in the past before May 7, HST would be applicable. If you are not using it as your prime your original intent was not to use it as your primary residence. So it’s fuzzy. Now, May 7 2022 onwards, assignment fee, assignment fees would be applicable.

Erwin  

No different than realtor commissions, though. It’s just duplicate. Yeah. So that’s sucks. I’m sure a lot of people who are holding the construction on assignment

Cherry  

fees only.

Erwin  

Yeah, but I imagine they’re all not happy about that. Well,

Cherry  

before me seven CL A’s position is that the deposit reimbursement by the buyer of your assignment deal would also be subject to HST. That was the position in the past, but may 7 and onward. They said, Hey, you’re a pay HST on a deposit. So therefore, no HST on that amount. So they clarify their position, which is beneficial to people. It’s just before it was confusing.

Erwin  

All right. What about anti flipping? What if you’re the anti flipping world? What if you’re flipping within the using a corporation?

Cherry  

So if you flip your houses within a corporation, and you’re really conducting a flipping business, the profit that you make is 12.2%. In Ontario, 100% of it is taxable, but you’re only subject to small business tax. Right?

Erwin  

So the majority of mice, my professional flipping clients, they’re using corporations to begin with, to begin with, so they’re just nothing really changes for them.

Cherry  

Yeah, so that’s why some in the accounting world some people are arguing that hey, like the rules have already been in place forever. It’s just that now they just make it a slash like a clear draw something in the in the sense a 365 days and last for sure, you’re flipping I don’t care, but they are only targeting people who make a profit. If you have a loss, because last year is a situation is a little different. The market is still not going up, back up yet. If you incur a loss and it is within 365 days, you cannot just call it a business loss. You still have to go through the original criteria. How often do you do the tray? If you are do you have insider knowledge? What’s your intention, they still look at the old criteria to make sure that you fall under the business because capital loss is not as beneficial as business loss.

Erwin  

So it says this one flipper taxes any home flipper tax is beneficial for people who are buying to live and it actually sounds beneficial to my professional flipping clients that business laws know the fact that there will likely be less competition flips,

Cherry  

oh, it was so it’s really targeting people who are abusing the rule to begin with. Right. So

Erwin  

they’re probably amateurs as well. If they’re not flipping within a corporation, they don’t really they’re not really in the business of it. They’re just

Cherry  

dabbling into it. Yes, yes. Yes, absolutely.

Erwin  

Okay. No problem with that. I think, I think, wow, that that empty flipping tax got a lot of heat in the community. That really doesn’t affect many.

Cherry  

It doesn’t like a lot of our clients and our community. Yeah.

Erwin  

Well, I know a lot of people out there do these things like the flip whatever. And claim they lived in it. Yeah. No, it’s great for them. Terrible for everyone else down the line.

Cherry  

Yeah, absolutely. And they’re really trying to talk to those people. Okay.

Erwin  

No problem with that. All right, what else we got? This should be a Halloween show.

Cherry  

So there’s the new trust reporting rule that come is coming into play. Okay, never heard of this one. So this trust reporting role before you shut down this whole podcast, listen to me. It’s coming down. And it’s applicable for this fiscal year 2023 calendar year, and the legislation was released December, and it was supposed to be effective last year. And obviously, they didn’t get it down. And I guess the UHT is already a huge headache for CRA so they allow the postpone and delay for this trust rule. So this trust rules specifically called out bear trust T to file a T three trust return. Okay, what does that mean in plain English. So in plain English, if you the people that we identified as acting as trustee, owning the property in Transport Corporation, you’re on title owning your cooperation is owning a property in trust for you personally, because it happens a lot as well in the real estate investment while you own a property in trust for a joint venture relationship. That is, you don’t call it a trust, it’s not registered trust, per se, it was bad trust arrangement, these big house arrangement now has to be reported by CL to CLE. Oh, starting next year, is applicable this year. So this is pretty common. Yeah, so the same with the under US housing tax act that trust, the same trust relationship would have been identified by this new truss reporting role, and we all have to report it.

Erwin  

So what should investors do? What are the supplies? So

Cherry  

using our townhouse as an example, you are now owning it in trust for me, because you’re on title for mortgage, and you’re owning it in trust for me. So you would have to file a trust return as for next year, and report that trust relationship, even though you have nothing to do with the property, you’re really on title for mortgage purpose. So UHT is one and then trust reporting in second. Now, what can investor do? Now, since you’re still on title in our example, as of this moment, you’re still on title. So you still have the reporting requirement, the trust reporting rule is applicable to any ownership that happened during the year. It’s not as at December 31, at least based on the current legislation. So essentially, there is nothing you can do, the only way that you can get away from it is for future years. So in the current year, you will try to get away from this trust relationship. Maybe in our particular example, we will try to remove your name from title that’s going to help eliminate a future filing obligation, but not for this current year. For 2023. You still have the following, although realistic,

Erwin  

is that though? Hmm. Because I was added for mortgage for mortgage purposes. Yep. So how rational likelihood would I be removed?

Cherry  

I don’t know. It’s a conversation that you need to have with your bank. Right? So this is one example. A lot of our clients have the properties owning interest for the cooperation that they all, it’s all often to get around. Because it’s harder to get financing,

Erwin  

or just started, just for point of clarification, folks, it for the listeners benefit. If you have no idea what we’re talking about on this specific point, likely doesn’t doesn’t affect you. If you know what we’re talking about, this likely affects you.

Cherry  

So if you own the property and trust for the corporation, now, this is applicable to any trust relationship, not just residential properties. We’re talking about all properties now. So you purchase a property in trust for a corporation and your corporation report all the income and expenses, you’re acting as a bear trustee, then you need to file that return.

Erwin  

Interesting. So it’s a rich person problem. I don’t generally just throw that out there. What what is the objective of this of this reporting rule?

Cherry  

I guess there are a lot of people who are owning properties and they are not really reporting who the true owners are.

Erwin  

Oh, since the government just wants to wants more visibility into who owns what. Yes. Yes. Getting more into our business.

Cherry  

Yes. They should know. And it’s just that they now want it You, if you had a family trust setup, you would already have been filing that family trust return on an annual basis is all these bad trustee agreement behind the scenes that nobody knows. Right?

Erwin  

Yes. Here’s the thing keep, keep asking for more information from us. Because remember, I forget what year it was enter you remember, when? Because only a few years ago CRA asked how much we made when we sell our home? Correct? Yeah, that was only a few years

Cherry  

ago. 2017. Okay. Long as I

Erwin  

remember. And so they Yeah, they just keep seeing the ask for more. Yep. Interesting. That rule

Cherry  

came into play because people are using the primary residence exemption.

Erwin  

Know what I’m talking about. We’re using government wants to know how much we’re making something when we sell

Cherry  

our home. So yeah, actually, they don’t know how much you’re making. Until we report it. They only you only report a sale price. You’re willing to purchase price.

Erwin  

Okay. They can look at land titles.

Cherry  

Yes. But they don’t. If they are really trying to get that information. They could just ask for it. I’m surprised that they’re not. Yeah. Interesting. Certain situation they do if you don’t live in it, and it’s not your primary residence the entire time, then they may. Okay. All right.

Erwin  

We’re running out of time on this Halloween Special. joking about Halloween special it is March February 19. As we’re recording, is there anything else that investors need to absolutely know for new tax changes in 2023? I don’t

Cherry  

think there are many there’s like a couple of minor one. I don’t even know if you need to know like it’s off, particularly for investor for first time homebuyer you are, there’s the introduction of the first time homebuyer savings account. It works kind of similar to like an RSP, a hybrid of RSP and TFSA. The contribution to the F HSA account is tax deductible. So similar to RSP. If you withdraw from the F HSA account for the purpose of buying your first home, then you would be able to withdraw it tax free. So all the income that you get from it, the investment return, together with the withdrawal would be tax free, assuming you’re withdrawing it for the purpose of buying your first home.

Erwin  

So money going in is that is it a tax shelter?

Cherry  

Yeah. Attached tax deductible. So like RSP contribution? Oh, interesting. But money coming out is not added to your income, assuming you use the money to buy a first to buy your first home.

Erwin  

Is this something that parents can do for their kids?

Cherry  

So annual maximum contribution is about $1,000. Lifetime lifetime contribution is $40,000. It’s not very significant. No, it isn’t. But it is something that you could potentially take advantage of. So that’s F HSA, they haven’t really officially introduced it and allow the institution or the trustee. When I say trustee, it’s really the the bank that holds these F HSA RSP account the register account for you. They haven’t allowed that to be opened yet. But it will be sometime this year.

Erwin  

Right before the lifetime amount. I don’t even know if that covers the double land transfer tax in Toronto. Yeah,

Cherry  

exactly. But just saying.

Erwin  

Neil, Justin Trudeau saving us off

Cherry  

first year is $1,000 only. So thank you, Justin. And then another thing is the multi generational home tax credit. I think it’s for renovation, if you’re putting a suite in your house for your family member to live in. I think there is a multi generational tax credit available, I think you can get back up to $7,500. You need to have receipts. And there’s a criteria that you need to meet. In terms of the suite setup, it needs to have its own kitchen, as well as bathroom as well as the second place. Second, check makes it safe. The second exit.

Erwin  

sounds very much like our typical basement. Apartment strategy.

Cherry  

Yeah, but except that you do need someone to live in there for you to get the $7,500 to be a family member. I think so. Okay.

Erwin  

Can you remind us again, how our tax credit works? Because it doesn’t come off the top of your income? Where does it come off from the bottom? So after all the deductions, then they

Cherry  

know so it’s calculated really based on the lowest marginal tax rate. It is a refundable amount, though. So 7500 is the maximum you can get from CLA, which covers us up to I think about $50,000 of renovation expense.

Erwin  

Okay, I’m trying to create with some $500 of tax credit guests even a duplex conversion 50,000 probably pays me about apparently pays for like my basement egress window.

Cherry  

It is better than not having it and plus, it’s not meant for investment property per se Right. Like it’s for you to live with your mom, elderly mom or with your elderly aunt.

Erwin  

Firstly, thank you, Justin Trudeau for saving us You know if they could just, you know, figure out some less red tape that probably be a lot more effective than this. All right. That’s all. That’s all the tolerance we have for this Halloween Special. Again, I’m joking folks is February 19. As we’re recording Chair, thank you so much for doing this. I think we’ll probably have to have you back in a few weeks if you can manage it during tax season to tell us whatever else we need to look out for.

Cherry  

Yeah, wish us luck. I wish all the accountants out there luck as well. accounting firm, public accounting firm and

Erwin  

all the spouses of accountants.

Cherry  

Good luck everyone.

Erwin  

Before you go if you’re interested in learning more about an alternative means of cash flowing like hundreds of other real estate investors have already, then sign up for my newsletter and you’ll learn of the next free demonstration webinar I’ll be delivering on the subject of stock hacking. It’s much improved demonstration over the one that I gave to my cousin chubby at Thanksgiving dinner in 2019. He now averages 1% cash flow per week, and he’s a musician by trade. As a real estate investor myself, I got into real estate for the cash flow. But with the rising costs to operate a rental business, it’s just not the same as it was five to 10 years ago when I started there. Forget the cash flow reduces your risk. The more you have, the more lumps you can absorb. And if you have none, or limited cash flow, you’re going to be paying out your pocket like I did on a recent basement flood at my student rental in St. Catharines. Ontario. If you’re interested in learning more, but it’s true for free for my newsletter at www dot truth about real estate investing.ca. Enter your name and email address on the right side. We’ll include in the newsletter when we announce our next free stock hacker demonstration. Find out for yourself what so many real estate investors are doing to diversify and increase our cash flow. And if you can’t tell I love teaching and sharing this stuff.

 

 

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