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Buyer Beware: Tax Implications of Buying from a Foreign Owner

 

Buyer Beware: Tax Implications of

Buying from a Foreign Owner

Imagine being the lucky winner in a bidding war and finding out you have to pay $625,000 extra on a $2,500,000 house purchase or even $125,000 on a $500,000 condo purchase. If you are buying a house or condo, there is important information you need to know about. If you suspect the seller of the property is not a resident of Canada or won’t be on the completion date, the onus is on you, the purchaser, to perform your due diligence to determine the sellers’ residency status.

Employment income, income from a business operated in Canada, and capital gains earned from selling Canadian real estate are all subject to tax. If a U.S. resident owned a condo in Toronto they used while working here temporarily and sold it, they would likely incur a capital gains tax. Likewise, if an Asian family had purchased a property for their children to attend high school or university and then sold it when it was no longer needed, capital gains tax could be owing.

Of course, collecting the tax from someone off-shore can be difficult if not impossible, so the Income Tax Act makes a provision for the purchaser to withhold 25% of the purchase price unless a Clearance Certificate has been issued by CRA or “after reasonable inquiry the purchaser had no reason to believe that the non-resident person was not resident in Canada.”  Generally a seller signs a “sworn” statement that he or she is not a non-resident of Canada (meaning the seller is either a permanent resident or citizen of Canada). Even if a statement is signed, it might not be recognized if you, the buyer, has ignored warnings that they may, in fact, be a non-resident.

There was a court case over the summer where a resident of California purchased a property several years ago and subsequently sold the Toronto condo. The seller was physically present in California on the completion date and signed a one-line statement that he was “not a non-resident of Canada for income tax purposes, nor will I be a non-resident on the completion date”. The Agreement of Purchase and Sale showed a California address to be used for document delivery. The judge in the case noted that the seller signed he had DECLARED he was not a non-resident. This was not a SWORN statement nor was it a SOLEMN DECLARATION. The judge further noted there were too many “red flags” to accept an unsworn statement and not to raise suspicion that this seller was not a non-resident. The purchaser was ordered to pay $92,000, which represented a whopping 25% of the $368,000 purchase price.

Most real estate transactions are closed by a lawyer acting on behalf of the seller, but a buyer should have their own lawyer as well. Make sure your lawyer requests proof of citizenship or permanent residency to eliminate your tax obligation on the purchase of your next home.

 

August 2018 Toronto Real Estate Market Report

 

Market data for August came in as expected. Both the average sale price and the number of residential properties reported sold increased compared to August 2017. The average sale price for all properties sold came in at $765,270, or almost 5 percent higher than last year’s average sale price of $730,969. The number of properties sold compared to last year increased by almost 9 percent to a healthy 6,839 from 6,306 in 2017.

The increase in property sales was slightly unexpected. The 905 region was particularly hard hit by the implementation of the 15 percent foreign buyers tax. Since April of 2017 sales in the region have lagged behind sales in the 416 trading areas. That was reversed in August. Of the 6,839 sales achieved in August, 4,398 occurred in Toronto’s 905 region. It appears that the 905 market has adjusted to the implementation of the provincial legislation.

Although sales have clearly picked up in Toronto’s 905 region, sale prices continue to lag. For example, the average price of a detached house in the city of Toronto came in at $1,244,275 as compared to $907,780 in the 905 region. Similarly, semi-detached properties in the City of Toronto sold for almost $900,000, but dramatically less at $667,979 in the 905 region. Even condominium apartments in the City of Toronto out-priced sales in the 905 region. The average sale price of condominium apartments in the City of Toronto came in at $585,355 and at only $440,748 in the 905 region, although compared to last August average sale prices increased by 8 and 6 percent respectively in both trading areas.

The high end of the market also showed some improvement in August, but marginal. Last August 132 properties were reported sold having a sale price of $2,000,000 or more. This August 144 properties were reported sold in this category. The bulk of these sales were detached homes, although there were 8 condominium apartments sales in the $2,000,000 plus range.

In all categories, central Toronto properties continue to be the most expensive. Detached properties sales came in at $2,201,334. Semi-detached properties averaged $1,087,507, and condominium apartments averaged $662,059.

Listing inventories have increased compared to August last year. This August 12,166 new properties came to market, an increase if 6 percent compared to the 11,481 that came to market last year. As a result, active listings at the end of August were almost 9 percent higher than last year. In 2017 there were 16,419 properties available for buyers to view and purchase. This year there were 17,864.

A closer examination at the greater Toronto inventory indicates that it is overwhelmingly concentrated in the 905 region. Of the 17,864 active listings in the greater Toronto area, 13,056 were located in the 905 region with only 4,808 in the City of Toronto. Looked at from the perspective of months of available inventory, there are 2.6 months in the 905 region and only 1.9 in the City of Toronto. The same was true for new listings that came to market in August. Only 3,752 of the 12,166 new listings in August were in the City of Toronto. Interestingly, more than half of these new listings were condominium apartments.

Unlike last year average sale prices are only occasionally exceeding the average list price. In the City of Toronto all sales came in at 99 percent of the average sale price and sold in 23 days. In the 905 the sales to list price was lower, with sales taking place in more than 25 days, on average. Buyers are more deliberate, unwilling to pay any price to secure a property. Sellers’ expectations have modified dramatically since early last year and are more aligned with that of buyers.

The only trading area that has defied the changes that have taken place in the Toronto and area market place is Toronto’s eastern districts, especially those closest to the downtown core (Riverdale, Leslieville, and the Beaches), particularly semi-detached property sales. Sales in these neighbourhoods were all completed in 10 days on average, and all sales prices exceeded the average list price by 109 percent. At one time it could be argued that these trading regions bucked the norm because of affordability, but with the average sale price for semi-detached properties exceeding $1,000,000 that is obviously no longer the case. These neighbourhoods are simply some of the most desirable in the City of Toronto in their price point.

During the last part of this year the market is unlikely to vary dramatically from what occurred in August. In fact, price increase and property sales will likely be even more moderate that those achieved this August. The increases of 9 percent (sales) and 5 percent (average sale prices) were high compared to August 2017, the weakest month following the implementation of the Ontario Fair Housing Plan in 2017. Going forward expect increases in the 3 to 5 percent range for both sales and average sale prices.

Prepared by: 
Chris Kapches, LLB, President and CEO, Broker

Featured Photo Credit: Shane Kingerski

Out in the City: Symphony in the Gardens at Casa Loma

Out in the City: Symphony in the Gardens at Casa Loma

Symphony in the Gardens at Casa Loma

Out in the City: Symphony in the Gardens at Casa Loma

There is an exciting partnership between Casa Loma and the Toronto Symphony. Their Symphony in the Gardens series, with Kerry Stratton conducting, brings a wonderful sensory experience: combining a night out in Toronto at a heritage location, good food and drink, and live classical music amongst the beautifully-planted gardens on a warm summer evening.

Symphony in the Gardens at Casa Loma

For the normal entrance fee ($30 for adults) to Casa Loma, you get access to the building, its grounds, and the musical event of the evening. The Toronto Symphony performs in a tented glass house with excellent acoustics.

Symphony in the Gardens at Casa Loma

Bring your sweetheart or friends and have a memorable evening al fresco with dinner, a glass of wine, tropical sangria, or gelato in the shadow of this important Toronto landmark.

Out in the City: Symphony in the Gardens at Casa Loma

There are two more evenings planned: August 21 st and August 28th at 7:30 p.m., but get there early, because seating is limited. The August 21st program is Screen Classics, music that has defined film and television. The August 28th program is Thank You for The Music, a celebration of Abba!

Symphony in the Gardens at Casa Loma
1 Austin Terrace

August 21 & 28 – 7:30 p.m.   

Website: casaloma.ca/events_feature2.html

Symphony in the Gardens Casa Loma

July 2018 Toronto Real Estate Market Report

Symphony in the Gardens Casa Loma

Chip Barkel Toronto Real Estate Prices July 2018

 

July 2018 Toronto Real Estate Market Report

There were no surprises as to the market’s performance in July. There has been a consistent improvement both as to sales volumes and average sale prices since January. July saw the most dramatic year-over-year improvement. As compared to last year, sales volumes in the greater Toronto area increased by 18.4 percent, and the average sale price was 4.8 percent stronger than the average sale price last July. In July 6,961 residential resale properties were reported sold in the greater Toronto area. Last year only 5,869 properties were sold. The average sale price came in at $782,129 as compared to $745,971 last July. The average sale price in the city of Toronto came in at $824,336, almost 6 percent higher than the greater Toronto average, notwithstanding that the bulk of the property sales responsible for this average sale price were condominium apartments.

168 Bethel Sideroad, Georgina, ON

For the first time since the introduction of the Ontario Fair Housing Plan measures, every housing type saw price increases as compared to last year, including detached properties. The average sale price for detached properties came in at $ 1,350,700, an increase of 3.6 percent. Semi-detached properties increased by 7.4 percent to $935,300, and condominium apartments continued their upward trajectory, coming in at $582,247, an increase of almost 10 percent. The average sale price for condominium apartments in Toronto’s central districts, where most sales take place (65 percent), came in at $653,137. Translated as the cost for space, central district condominium apartments are now selling for approximately $1,000 per square foot.

43 Lakeview, Stouffville, ON

July also saw a recovery in the high-end of the market. The high-end of the market, primarily single-family properties, was dramatically impacted by the implementation of the 15 percent foreign buyer’s tax, the new mortgage stress testing, and three rate increases implemented by the Bank of Canada. For example, during the first 7 months of 2018, realtors reported that

1,247 properties having a sale price of $2 Million or more had sold. This number compares very poorly with the 2,625 similar properties that were reported sold over the same period last year, a negative variance of well over 50 percent.

In July this negative pattern was reversed. In July 181 properties having a sale price of $2 Million or more were reported sold. All but 16 of these properties were either detached (160) or semi-detached (5) properties. This compares favourably to the 149 similar properties that sold in July of last year, an increase of 21 percent. It should be noted that this improvement in sales volume is due to a combination of buyers adjusting to the various measures introduced by governments, increased mortgage rates and sellers accepting that their expectations as to the ultimate sale price of their properties had to be lowered. This is reflected in the fact that the average sale price came in at only 98 percent of asking price for detached homes, and in districts where Toronto’s most expensive properties are located, at only 96 percent. Even these figures are not entirely representative since they do not account for any price reduction from the original list price of these properties.

2 Wolford Court, Georgina, ON

Inventory levels are a concern. Throughout 2018 they have been declining, particularly in the 416 regions. Of special concern are semi-detached properties and condominium apartments. In both categories, levels are now lower than they were last year at this time. In July there were only 329 active semi-detached properties available to buyers in Toronto, and only 2,583 condominium apartments. Last year there were 2,710 available and that figure was substantially less than the prevailing buyer demand. Due to these shortages, all semi-detached properties sold at 103 percent of their asking price. All condominium apartments sold at 100 percent of their asking price.

23 Cedar Drive, Caledon, ON

Going forward the lack of inventory (semi-detached and condominium apartments) will continue to put upward pressure on average sale prices, but that pressure will be limited. The increase in mortgage interest rates and the implementation of the new mortgage stress testing will limit buyers’ ability to stretch to higher prices as was the case last year. What should result is moderate increases in average sale prices and the number of residential resales. Increases should not exceed 3-5 percent until either interest rates decline, or we see substantial increases in wages and salaries.

Prepared by: 
Chris Kapches, LLB, President and CEO, Broker

Featured Photo Credit: Shane Kingerski

May 2018 Toronto Real Estate Market Report

There were no surprises in the May resale figures for the Toronto and area residential market. The three themes that emerge are that the city of Toronto resale market continues to strengthen (416 region); the 905 region continues as a drag on the overall market; the high-end of the resale market ($2 Million plus) has yet to return to anywhere near its early 2017 performance.

 

The City of Toronto has almost returned to the way it was performing last year. The average sale price for all properties came in at $861, 970. Last year at this time it was $899,000. The number includes condominium apartment sales which, significantly, continue to represent the most affordable housing available in Toronto, and accounted for more than 56 percent of all properties reported sold in May.

All properties (including condominium apartments) sold in only 16 days, and impressively, sold for 101 percent of their list price. In the eastern districts located closest to the central core (Riverdale, Leslieville, Beaches) all properties sold in just over 8 days, at more than 110 percent of their asking price. These are some remarkable statistics that are generally ignored by the daily newspapers and articles related to the Toronto and area marketplace.

The data emerging from the 905 region is not as impressive. Notwithstanding the size of the 905 region, only 60 percent of all reported sales (7,834) took place in the region. The average sale price of $805,320 was more than $55,000 lower than the average sale price of $861,970 achieved in the City of Toronto.

What is troubling about the 905 region is that 73% of all available inventory is located in the region. In May there were 20,919 properties available to buyers, but only 5,797 in the City of Toronto. As a result, the sales to list ratio in Toronto was 56.5 percent, but only 46.8 percent in the 905. The months of inventory in the 905 is 2.6, while only 1.9 in Toronto. All sales in the 905 took place in 20 days, but only 16 in Toronto, and not surprisingly, all sales in the 905 took place at 99 percent of their asking price, but at 101 percent in Toronto. Given this discrepancy in market performance, it becomes extremely deceptive if the Toronto and area resale market is analyzed as a whole, and not as two distinct marketplaces. In May 233 properties having a sale price of $2 Million or more was reported sold. This compares very poorly with the 427 similar properties reported sold in May last year. This represents a 45 percent reduction year-over-year. The explanation for this decline is many-fold. Last year, on the obsessive belief that house prices would continue to skyrocket, high-end average sales prices reached unsustainable levels. Since then here have been three mortgage interest rate hikes, and banks are now applying more restrictive stress testing on all properties. The 15 percent foreign buyers tax is playing some role in this scenario, but less significant than the provincial government’s perception.

All of these factors have had a strong psychological impact on buyers. They are clearly waiting to see if prices will continue to fall at the high end. That hesitation has resulted in the sharp drop in sales in this price category. However, as May’s results for the City of Toronto indicate, the market is improving which will have an ameliorative impact on the psychological hesitation of buyers in this price category.

Inventory levels are becoming a concern, particularly in the City of Toronto. Last year there were 5,779 active listings at the end of May, a period of severe inventory shortages. This year there are only 5,797. Although the difference is marginal, it represents a pattern that has been emerging. Declining inventory will lead to rising prices and hyper competition for good properties in desirable neighbourhoods.

Condominium apartment inventory is also declining. Last year there were 2,509 active listings at the end of May. This year there are 2,552. Again, the difference is insignificant but a declining pattern is emerging. This is very concerning because condominiums apartments remain the most affordable housing in Toronto, at least for the time being. Prices for condominium apartments have been increasing. The average sale price for condominiums apartments in Toronto is now $602,000 and a stunning $671,000 in the central core. Considering that 64 percent of all apartment sales in Toronto are in the central core, affordability is now becoming a concern, even for condominium apartments.

Looking forward to June, it’s possible to see a marketplace that once again can be favorably compared to last year. The initial impact of the Ontario Fair Housing Plan measures will be history and next month’s chart will look much smoother than the one below.

Prepared by:

Chris Kapches, LLB, President and CEO, Broker

Summer is Here: Are Your Sunglasses SO Last Year?

Summer is Here: Are Your Sunglasses SO Last Year?

 

Are sunglasses important? YES!!! YES!!! YES!!! Of course, they can be a fun fashion accessory, but most importantly sunglasses block out ultraviolet (UV) rays, which can damage eyes. For many, harsh sunlight can trigger the onset of a migraine headache. Long-term exposure increases risk of cataracts, glaucoma, and macular degeneration. Sunglasses also protect you from the elements: wind, sand, and snow. Snow reflects 80% of the harmful UV rays. Driving is also safer. We have all experienced momentarily blindness while driving into the western afternoon sun. That split second can be deadly.

What’s more, you’ll see more of this fabulous world and look better doing it. Some people have one tried and true pair of sunglasses, while others have many to make fashion statements. Whatever you choose, make sure they block out UVA and UVB rays.

So whether fun or fashionable, cool or conservative, find a pair that speaks to you. My go-to place for eyeglasses is Optic Zone at 33 Jarvis. Joseph has a keen eye for what suits you.

 

Bedford Park Toronto House for Lease

Bedford Park, Toronto

28 Douglas Ave

Offered For Lease at $5,500 per month

John Wanless / Lawrence Park School District

 

Bedford Park House for Lease 28 Douglas Ave

 

Fabulous Fully-Renovated 3+1 bedroom Family Home

Custom kitchen w/ granite countertops

Beautifully updated marble bathrooms & new hardwood floors

Zoned heating on each floor

Basement suite with heated floors

Must be seen

Call Chip 416-925-9191 to be the first to see it

Etobicoke House for Lease

45 Ambleside Ave

Offered For Lease at $2,200 per month

Norseman JMS / Etobicoke Collegiate School District

45 AMBLESIDE AVE ETOBICOKE FOR LEASE

3 bedroom Family Home

Hardwood floors

Private drive and garage

Private backyard

Easy access to QEW and lake

One Year Lease

45 AMBLESIDE AVE ETOBICOKE FOR LEASE KITCHEN

 

45 AMBLESIDE AVE ETOBICOKE FOR LEASE KITCHEN

45 AMBLESIDE AVE ETOBICOKE FOR LEASE PRIVATE BACKYARD

Call Chip 416-925-9191

Cottage Dreams: Georgian Bay Retreat Near Honey Harbour

 

Cottage Dreams: Georgian Bay Island Retreat

2460 Island 1810 (Bone Island), Georgian Bay, Ontario

$499,000

 

Great Opportunity to own 410 ft. of prime shoreline on 7.7 acres of well-treed property with existing 2 bedroom, 769 sq.ft. cottage. Great location & neighbourhood. Excellent swimming, boating, and fishing. 20 minute boat ride north of Honey Harbour. Brand new 40-foot dock on deep water. Just 2 hours north of Toronto. Georgian Bay National Park is a neighbour.

Georgian Bay is the northeastern arm of Lake Huron, in Ontario. It’s characterized by rugged bedrock, white pine forests to the north, sandy southern beaches, and 30,000 islands. Bruce Peninsula National Park on its western side includes part of the Bruce Trail along the Niagara Escarpment. Fathom Five National Marine Park is known for preserved shipwrecks, 19th-century lighthouses and Flowerpot Island’s sea-stack rock formations.

 

 

Cottage Dreams: 2059 Indian Point Road – Haliburton

Cottage Dreams:
2059 Indian Point Road, Haliburton, Ontario

For Sale — $1,599,000

Drag Lake – This is truly a once in a lifetime opportunity to purchase your dream cottage that has been completely transformed by the design duo Colin McAllister & Justin Ryan. Grey Gardens will check off all the boxes on your wish list. A very private setting on a level lot with easy year-round access. The stunningly landscaped lot has South West exposure for beautiful sunsets and all-day sun. The main cottage is open concept with cathedral ceilings, multiple walkouts, spacious Haliburton room. Large upper level master with ensuite and a fully finished lower level offering a large rec room, bedroom, 2 piece, office & mudroom w/ walk out. Guests will love their private Bunkie with bedroom, bathroom & gym. Relax in the outdoor cedar hot tub looking up to the stars or soak in the 6-person sauna. Located a mere 15 minutes to Haliburton with tons of services and amenities. Being offered 100% turn key with all the furnishing and special décor that only these two designers could envision.