Tax Questions

[kumquat]

My wife owns a condo that our daughter lives in (currently rent free). She used her funds for the down payment and it is solely in her name. It's mortgage renewal time and we're considering paying it out. We could pay it (~70K) from either of our accounts. I know that if I give her money that she invests then I should claim the income. If I give her the money to buy it and it produces no income for a few years but does eventually, will this allow a transfer of capital without obligation to claim the income for tax purposes? Alternatively, if she never realizes income but just sells it with a capital gain, will that tax obligation fall on her or me?

Thanks

[Norbert Schlenker]

The attribution rules between spouses are that future income and/or capital gains are supposed to be prorated between you and your wife if you give her the money. To be fair, CRA has limited means of tracking such things. However, should you or she be so unlucky as to come up for audit and they ask where the $ to pay off the mortgage came from ...

[twa2w]

If the funds given to the spouse are used for investment then income would be attributable, but in this case it is used to pay off a debt. I was of the understanding that in this case there can be no attribution because the there is no income from paying off a debt. CCRA cannot distinguish between a debt to aquire personal effects and one used to acquire income producing assets. The exception being if you lent her the money and then forgave the debt. But I cannot find the case law I was looking for so I'm not sure I recall the facts correctly.
A quick consult with a tax lawyer/ accuntant should set your mind at ease.

Cheers
J

[HomePlanet]

From the Interpretation Bulletin IT-511R, Interspousal and Certain Other Transfers and Loans of Property:

7. Pursuant to subsection 74.1(3), the attribution rules in subsection 74.1(1) apply to transferred or loaned property which is used either to repay borrowed money that was used to acquire property or to reduce an amount payable for that property. For example, if an arm's length lender lends a taxpayer the money to acquire income producing property and later, the taxpayer's spouse makes a gift to the taxpayer equal to the taxpayer's indebtedness on the property and the gift is applied to retire the indebtedness, the income from the property will attribute to the taxpayer's spouse.

It seems that any capital gains or income from the condo will fall to you, in proportion to your contribution. Perhaps you can argue that your share is the proportion of your contribution to the value of the condo at the time you paid down the mortgage. Assuming it has grown in value, that would reduce the attributed income/cap gains.

[twa2w]

Thanks Homeplanet, I stand corrected.

Cheers
J

[optionable68]

I recieved a gift from a friend of mine from the US today.

The gift was valued at $150, and I was charged $44 to pick it up from the post office (included charges for duty, GST, PST, and handling fees)

Is this common for gifts? The parcel was clearly marked as a "gift".

Thanks for any insight you might offer.

[Bylo Selhi]

See http://financialwebring.org/forum/viewtopic.php?t=698

[dagan]

Commodity taxes are not really my 'thang', but IIRC you have to pay duty on gifts above a certain dollar value. I'll look for links later. Until then, I stand prepared to be proven wrong.

[optionable68]

Thanks Bylo, looks like I'm SOL.

[AltaRed]

Yes, it is common for gifts. Gifts are treated as 'imported goods' and therefore attract whatever punitive charges our so called 'free trade' government can figure it can rip you off for.

We have sent several things (gifts) from USA to Canada over the years and always declare a value. We learned through experience to declare low values. I believe <$50 attracts zero taxes, duties, etc. Easier of course for the sender (located outside of Canada) to make that declaration.

I am not an expert and stand corrected.

[la principessa]

With the advent of cross-border-Internet shopping, Canada Customs got wise to people marking a package "gift" even though it was a purchase, say from an eBay vendor. I generally declare only 1/3 the true value (and never mention if there's cash inside a book) and ask people in the States to do the same when mailing packages. This is as much to fend off thieves as customs officers.

[unicef01]

i read and dug up a page from mastercard usa that says some state/federal taxes can be paid by mastercard...

does anyone know if we can do the same in canada?


http://www.mastercard.com/cardholderser ... epaid.html

[Bylo Selhi]

Nope.

Anyway, why would you want to? In the US the payment processors charge a "convenience fee" of 2.5%. It's bad enough to have to pay tax without paying another tax to a third party. See e.g. https://www.officialpayments.com/pc_conv.jsp

In Canada you can pay your taxes using your bank's online payment system. Payment happens immediately, you get a confirmation and there's no postage to pay.

[Shakespeare]

Payment happens immediately, you get a confirmation and there's no postage to pay.

But if you mail a cheque, you can leave the money in the account longer - and even $4K at 2.75% (which Scotia High Interest pays) will cover the postage in 2 days.

[Dennis]

You can also post date the tax payment to the due date using on line payment.

[Jo Anne]

You can also post date the tax payment to the due date using on line payment.

Mailing a paper cheque is better, especially for a penny pincher like me.

Mail it on April 30, it won't clear your account until at least May 7. I've had tax cheques float for up to 3 weeks.

[DenisD]

You can drop off your return + cheque at your local fed gov building and save the postage. But your cheque might be cashed a few days sooner.

[ghariton]

there's no postage to pay.

Don't forget the cost of the ink you save.

Georges

[dakota]

Mailing a paper cheque is better, especially for a penny pincher like me.

Cheques are getting very expensive.

[G-money]

Two scenarios:

1. I have an existing morgtage on a rental property. a) How is the income taxed, and b) how is the interest I pay on teh mortgage treated tax wise?

2. When the mortgage is paid off and teh majority of the rent paid is profit/income, how is this treated tax wise? Is it treated as regular income, or is it taxed as investment income? What are the different tax rates between the two, if any?

[Jo Anne]

G-money, you need to get the rental properties tax guide from Revenue Canada. This explains how net rental income is calculated.

You appear to have very little idea of what you are getting into here. If I were you, I'd back off the rental property idea until you have a better handle on the whole issue.

[G-money]

G-money, you need to get the rental properties tax guide from Revenue Canada. This explains how net rental income is calculated.

You appear to have very little idea of what you are getting into here. If I were you, I'd back off the rental property idea until you have a better handle on the whole issue.

Thats precisely why I'm here, asking these questions. I'm not going to jump into anything until I've done my homework.

[patriot1]

Is it treated as regular income, or is it taxed as investment income?

There is no such thing as "taxed as investment income". Income from investments can take several forms.

Income from rentals is ordinary business income which is taxed at the same rate as employment income. It is not subject to CPP or EI or course. It is treated as "earned income" for RRSP contribution purposes.

I'm talking about net income, not gross rent. The interest portion of the mortgage payment is a business expense, as is taxes, etc. So is CCA, but this cannot be used to create or increase a loss.

You questions seem to indicate that you are a bit fuzzy on basic investment and tax concepts, so I will second the other posters' suggestion that you should do some reading up. Real estate is about the most illiquid and demanding of any investment, and you really need to know what you're getting into.

[birdie]

Hi there G-Money. I own several rental properties and I can tell you from real world experience that it is a tough business with small margins. It requires active participation on your part because initially you will not be able to afford to hire people to do the work for you. So you will need to be willing to get your hands dirty once and a while. Also remember that it is a people BUSINESS, not a passive investment. My little empire requires basically 1 day a week no matter what, and that does not include renovation times or when people move out. You also have very little to no control over the workflow either. Stuff breaks, people move, all with very little to no warning.

That all being said however if you are really interested in building wealth, then real estate is definitely a vehicle that will do it for you. If you are out to make a quick buck it is definitely NOT a good vehicle.

Don R. Campbell has some excellent CANADIAN CONTENT real estate books that are just perfect for new (and not so new) real estate investors. Type his name into a search engine and check it out. Most public libraries have them as well. Some older books in the library may be worth checking out too. Just make sure that they are Canadian content as the majority of books on real estate investment are American.

You are from Manitoba, so check out http://www.gov.mb.ca/finance/cca/rtb/

and bone up on landlord tenant law as well

[FrugalTrader]

Two scenarios:

1. I have an existing morgtage on a rental property. a) How is the income taxed, and b) how is the interest I pay on teh mortgage treated tax wise?

2. When the mortgage is paid off and teh majority of the rent paid is profit/income, how is this treated tax wise? Is it treated as regular income, or is it taxed as investment income? What are the different tax rates between the two, if any?

1 You add up your rental income for the year, then you deduct all the expenses that occured during the year. Your result is then added to your income for the year. Some deductible expenses include: mortgage interest, home insurance, water/property tax, maintenance, advertising. If the dwelling is 100% rental property (you don't live in it), you can claim 100% of the mortgage interest.

2. As mentioned before, rental income is treated as employment income and taxed at your marginal tax rate. The advantage of rental income is that you can DEDUCT your expenses BEFORE you include it as income. So it may be in your best interest to keep a mortgage on a rental property(b/c you can claim the mtg interest) and perhaps re-mortgage when the time comes to pay off a primary residence mortgage (which is not tax deductible). If you SELL the rental property, you can claim the profits as capital gains where 50% of the profit is added to your income for the year and taxed at your marginal rate.

Hope this helps.