Investing in Canada

So, you step on a plane – fly to your particular foreign Paradise and as you lie on the beach or have that beaker of après-ski schnapps, you turn to your beloved and say: "We should buy something here."

Nine times out of 10 at this time you should grab a sharp stick and poke yourself in the eye. Painful? Yes! But a quick end with pain rather than the never-ending pain your foreign investment can cause you in some countries.

But, ahhh – there is that one place in 10: real estate investing in Canada. Buying and owning here is easy. Laws are clear and precise, property rights are respected and your investment is secure. You can hold property as a foreigner, you can rent it out, keep it empty or grow tomatoes on it – and if you make a profit you get to keep most of it.

And it isn’t just you as an individual who might be interested in taking some of those hard-earned euros, pounds or renminbis to produce real estate appreciation in Canada. The recent purchase of landmark office towers in Vancouver and Calgary by German investment groups shows clearly that Canada is on the radar for large international investors as well.

In the past year, Deka Immobilien Investment made its Canadian debut with the purchase of the fully-rented Bentall V office building in Vancouver, which they purchased off-market for just under $300 million at roughly a six-per-cent cap rate. The Germans also were active in Calgary as Commerz Real purchased Stampede Station for approximately $70 million. The 161,000-square-foot building was completed at the beginning of the year and is fully rented on long-term leases.

Movie stars are picking West Vancouver’s waterfront (fine appreciation and no paparazzi), foreign potentates pick up islands and scores of U.S. and Chinese purchasers are buying condos in Vancouver’s Coal Harbour.

So, are you ready?

There are really only two things to note if you wish to buy here as a foreigner: In Canada you must pay 25 per cent of your rental income to Revenue Canada and when you sell you need to pay 25 per cent of any capital gain. Whoa – “Ouch” you say. Not to worry – it is 25 per cent of the net rent and the net capital gain – as long as you file the appropriate forms and have a Canadian agent, otherwise taxes will be collected on the gross rent and/or the sales price.

To do:

1. Once you buy the property, immediately file a form called the NR6 in advance of the first day of rental income. Attach a pro forma rental statement, for example: “I expect $2,000 a month, my expenses are $1,900. My net rental income is expected to be only $100.” Then you only need to pay $25 per month to the (less) happy taxman. You have to file that form every December.

2. You need a tax agent in Canada who represents you – could be a realtor, property manager or tax accountant. Your agent must file form NR4 with Revenue Canada before March 31 to state how much rent actually was collected.

3. He must file a tax return on your behalf every year by June 30.

4. When you sell with a profit you file form T2062 (say you paid $800,000 and sold for a million – of the $200,000 profit the taxman will grab happily $50,000).

5. If you made your euros growing the “wacky tobaccy” and wish to pay cash, your real estate agent, by law is required to report your cash down payment ($10,000 plus).

That’s it. But, please note: Just because it is easy, legal and safe to own property in Canada, it does not mean that all property is a good investment – just as in the place you come from. There are good and bad deals, good and bad agents and it is up to you to do some research, find an experienced agent, and if what you are buying sounds too good to be true – it is.

(prepared by Ozzie Jurock/West Coast Homes & Design/Vancouver Sun)