Do builders have to be licensed contractors in Canada to build and sell their own homes?
Is there a capital gains tax on real estate in Canada similar to the U.S?
My wife and I are thinking about moving to Canada. We have been building a house, living in it for two years, and then selling and building again. Is this also possible in Canada?
Thank you for any information!
The Big Beautiful Bill could do away with much of the Inflation Reduction Act, including the 25C, 25D and 45L tax credits.
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Replies
i'm certainly no expert, but i am canadian.
in ontario you do not need a license to design and build a single family house under, i think, 1,000 sq meters ( 10,000 sq feet ). although most of us work with imperial, get ready for the metric system in all codes.
there is no capital gains tax on your principal residence after living in it for one year, as opposed to two years in the states. i don't know if that year starts with construction or completion.
here in canada mortgage payments on your principal residence are not tax deductible, and only the interest portion is deductible on investment properties.
hope this helps.
"i don't know if that year starts with construction or completion."Well, for it to be one's 'principle residence' it would need to be completed at least enough to dwell in legally, right? Do you have CO inspections there? If so, is that local, provincial, or national
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
Yes, we have CO's.....municipal planning board or whatever it may be called in a particular locale (Metro Planning here). We have national building codes, but individual authorities may have specific requirements.Cabinetmaker/college woodworking instructor. Cape Breton, Nova Scotia.
are you 100% sure about the 1 year? I thought it was only 6 months. I know it used to be, because my brother built couple of em in Alberta and only had to live in them for 6 months. but that was about 3 years ago. View Image View Image
there is no acutal time limit listed on CRAs site, but if you do it too often CRA may potenially flag it as a "business" and the homes will be taxes as "inventory"
To clarify your post for the original American poster:
CRA = Canada Revenue Agency = taxman
Regards,
Tim Ruttan
There's a national building code (which takes into consideration what the U.S. building codes are doing, so they're not wildly different) , and then each province uses that as the basis for their provincial code.
In Ontario, you can do anything and everything in your house: foundation, frame, electrical, plumbing - as long as you pull the permits, pay the fees, and get the inspections. You can't get the mortgage without a CO, so you'd need your own financing or a building loan.
What you're suggesting is really tough. I don't think it's possible to make a profit doing it unless the house is large and upscale. There's only a handful of cities/areas that I would even think about doing this in, and there's virtually zero chance of finding an infill lot in any of them, so you'd be building in the outer suburbs - possibly beyond the reach of city water/sewage/gas.
Here's some sample numbers for you off the top of my head:
Buy an infill lot in Ontario cottage country (hot area) = 80 x 200' lot = $250k
Build 3500 sq ft house @ $100/ft = $350k
You've invested $600k before you sell. I'd say you could sell it for $800k, give or take $200k.
I think a better alternative is to find an older bungalow within a large city and live in it while you gut it and add a 2nd floor on it. Lots of pensioners around who have owned a house for 50 years and are moving on.
Regards,
Tim Ruttan
Here in BC everyone's doing it. In fact people assume I'm planning to sell because I've built my own house. View Image View Image
Thanks for all the responses - very informative!
So can guys in BC make a living building, moving in, and then selling their own houses? They do here in Washington State, except that now the housing market is taking a dive.
How's the housing market in Canada? Have you have subprime loan problems and overheated housing inflation?
Certainly got overheated inflation. My home has tripled in price in 5 years. BC and AB are very hot, mostly due to oil-driven economics.Lignum est bonum.
I was just in Saskatchewan, and it's heating up there and in Manitoba also.....getting too hard to make money in BC and AB, so some of that money is flowing in. Real estate prices are also going up fast on the East Coast.
Cabinetmaker/college woodworking instructor. Cape Breton, Nova Scotia.
I'm not sure whether we have things as sub prime. We might but I've always paid cash so the topic has never come up. What I'm saying is that when you go to another country you have to give every term you use a deep thought. I lived in Australia for abit and in some cases we were using the same phrase but meant completely different things'
roger
No, NW, one of the strengths of our housing market is that we have no sub-prime lending.
Here, if you cannot afford the mortgage (and lately the terms have been VERY good) you will not get the loan.
Not that our institutions are not pushing the envelope.
We used to have fixed 25 year terms. It was done by the insurance companies. Then the banks lobbied and got involved, so you can get terms from 6 months to 10 years, at varying interest rates. Now, you can even have 50 year amortizations and 5% down. Geez Louise, if you can't afford THAT, you don't deserve to have a house.
Quality repairs for your home.
AaronR ConstructionVancouver, Canada
Be careful. As someone has already noted, there is no time limit specified in the legislation. Everyone has one in their head based on what their neighbour or Brother-in-law has done, but all Revenue Canada need to do is establish a pattern. You may flip the house once every six months or every five years, but if they prove it is a repetitive business activity, they will tax you.
A local builder is on the hook for almost 200 grand for eleven years worth of build-and-move houses. During that time he had no other source of income and so didn't have a leg to stand on when the auditors came.
I should admit I don't have much sympathy when builders get caught. I have built many spec. houses, and have had to compete against them in a tight marketplace where their ability to evade taxes gave them a distinct advantage.
Here in B.C. they have come out with new legislation to clamp down on owner built houses. Don't know all the specs but they are getting tougher almost to the point of impossible. I think the only reason is because the city and everyone else involved are not getting there palms ladden with cash as to what registered builders have to pay. I built my house about 8 years ago, did all the electrical, plumbing ect. myself. Never had a problem but now it is harder to do. I was going to build a house last year with a guy I work with. The only problem we ran into is the new home warranty. You have to give a builder warranty if you have no new home warranty. Your on the hook for that house for 10 years and your only allowed to build one every 5 years? will check that. Otherwise you have to be a licensed builder. You can make a profit if your lucky and it sells right away. About 20 to 60 thousand in 4 months if you sell the it right away. If not your carrying cost will kill you. I will find out the new rules and regulations which may only be for B.C..
I've found it easier to do renos. You can buy an existing house thats
priced right in an appropriate area, live in it while working on it and
doing paying jobs as well. There is more labour and less material
used in the reno vs new construction. There is less urgency to
sell because you are only paying for one place to live at a time.
Depending on the scope of the project permits may be less of
an issue and financing easier to obtain. Of course you may end up
with drywall dust in your bed and divorce is a possibility (LOL).
I can only speak for Ontario, as that's where I live and there are different building codes for each Province.
You can act as your own G.C. on your own home without license, as long as you meet O.B.C. ( Ontario building code ) Local by-laws must also be met and everything clearly spelled out in a set of working drawings, which, of course, have to be approved and stamped by the local Building Dept. As usual, inspections at the completion of each phase, and away you go.
There are no capitol gains tax when you sell your PRINCIPAL residence. The rule of thumb is 1 year, although, I.ve heard a way around it is to have a drivers licence or other suitable I.D. ( shark swimming card would not qualify ) in the address of the property.
I should also mention that there are no income tax right-offs for interest, mortgage or anything else associated with your principal residence.
I've fixed up a couple of homes and on paper, I'm doing O.K.
I'm a tax manager in Canada - so for once I can help some of you guys out. The principle residence rules doesn't really specify a "time limit" of say 6 months, or 1 year, or whatever. The legislation simply reads "...the housing unit was ordinarily inhabited in the year...". There is no real time period that is required by law, regardless of CRA's intepretation of that law. There are situations where individuals have multiple properties, including, but not limited to, houses, cottages, etc. and they can actually claim the principle residence exemption ("PRE") on say the cottage if that is more beneficial.
Some important items to note are that the PRE is available per "family unit" - i.e. you and your spouse have 1 combined PRE, NOT one each. You can only elect on one property per family unit. As such, you can't claim the PRE on your house AND cottage.
In the situation you describe, the house would be capital property and not an investment so the mortgage interest, etc. is not tax deductible. There are methods to get mortgage interest deductible, but this complicates the PRE.
Last note, you coming from the US, unless you renounce your US citizenship (I'm assuming you're a citizen), you will have to file and pay tax in the US. The gain on the sale of your principle residence, although likely tax-free in Canada, will have to be reported on your US return (since you have to report worldwide income if you are a citizen, regardless of where you live) and pay tax in the US. If you keep it longer than 12 months, you will get a lower tax rate since it would be a long-term capital gain and would be taxed at 15%, however this is tax you still have to pay. You have to be careful if you are a US citizen or permanent resident (i.e. greencard holder) and earning any type of income, including gains, outside of the US. In a normal context, the country of source (in this case Canada since you would be living in Canada and selling property located in Canada) would get to tax it first (in this case assume no tax b/c of PRE), then the US would also tax the gain, and any tax you paid on that gain in Canada, would offset this US tax. Ultimately, you will end up paying the higher of the two tax rates between the two countries.
Last thing, the discussion of whether or not you will be re-assessed and have this income treated as business income is true, however it's very difficult to prove from CRA's point of view. There may be many valid reasons for selling your house frequently - just ask my wife! As such, they can't just come in and say that the gain is business income just because you may have done this a few times before. However, it's important to know that this income could technically be re-characterized as business income and therefore fully taxed, although it would be difficult in practice to enforce this change.
Hope this helps.
I think you're pretty lucky. You found a bunch of guys that reall know there stuff. So I won't attempt to throw in my two cents. There was one comment that I really liked and that had to do with investing in high end homes. There is some real truth there. The luxury home market is exploding in Ontario. Be sure to research your builders. Know what it is that you want. Many of the so called reputable builders throw a house so fast that a home owner will quite often spend the next year or so chasing down the builder to come back to fix this and fix that. There is so much of it that many builders have have crews that do nothing but "after sales repairs". If you are considering the Niagara Region I would be happy to direct to builders that are not as large but produce a much better product.
Well it seems I managed to put my two cents in anyway. LOL
Good Luck
Dave
I'm in St. Catharines. I'm project manager for a kitchen and bath remodeling company; renos only.
Edited 8/16/2007 8:28 pm ET by Biff_Loman
really! Which one? I'm in Fonthill, I might know it.
Dave