The pros and cons of being a landlord
Dear Money Lady,
Christine, I have enjoyed your column in our newspaper and frequently clip them for my children.
I am 65 years old and very recently widowed. I have hardly any deductions and somewhere around 600K in unregistered savings. I have no mortgage on my home, but it needs repair. My husband was the financial head in our marriage.
My question is this: what is the safest way for me to lower my tax base? Buying property appeals to me the most, but I don’t want the headaches of being a landlord. Is it worth it?
Isabelle
Dear Isabelle,
Regardless of where you put your $600K savings, either in an investment property or in an unregistered trading account, you will now be subject to a higher capital gains tax.
If you have a capital gain of more than $250,000, you will now be subject to an inclusion rate of 67 per cent, up from the 50 per cent we were used to in the past.
This is something you will more than likely see if you were to purchase an investment property. Being a landlord nowadays is not for the faint of heart. Yes, you will have the tax write-offs, but you will also need to add the rental income to your overall annual taxable revenue.
BUSINESS VENTURE
While I agree there seems to be a large pool of potential renters today, please remember this should be thought of as a true business venture.
You will need to keep up with the regular maintenance and any unexpected repairs on the property, plus ensure the property taxes and insurances are paid.
Also, make sure you are diligent when finding the right renters. It could take a very long time to evict a tenant that pays zero rent.
While I am the first one to agree that becoming a landlord will most likely be a profitable venture in the long term, it is not without its challenges.
OTHER OPTIONS
Let me offer you another option to mix things up a little. Why not take $95,000 from your $600K and put this into a TFSA (tax-free savings account)? If you have never contributed to a TFSA, this would be your maximum contribution since inception.
Each year you can add to this, ($7,000 for 2024). You can invest these funds immediately and any income you make on your TFSA investment will ultimately be tax exempted.
With your leftover funds, why not fix up your current residence and do some modest improvements? Because this is your primary residence, it will also be tax-free should you decide to sell.
If you plan to downsize in the future, the profits made from your newly renovated primary residence will all be tax-free.
Extra funds could also be added to a new RRSP to give you a further tax rebate.
HOW TO LOWER TAXES
Here are five other ways to lower taxes:
1. Maximizing your registered account contributions, (TFSA, RRSP, RDSP).
2. Keep any and all receipts to claim a tax credit for medical expenses.
3. Starting a home-based business and deduct a percentage of your home expenses (mortgage interest, utilities, taxes, maintenance, etc.). This could be any kind of business, so be creative.
4. If you have a disability, you could also apply for a disability certificate from the CRA to allow for additional tax credits.
5. Consider investing in dividend investments that provide tax credits. For unregistered accounts, see if you can utilize any previous capital losses.