Real Estate a 'secret' tax shelter

I stumbled across this article and just had to send it out to everyone.

It starts off low-key, but then the writer makes a pretty ‘controversial’ statement that is buried in one of the paragraphs.

Here’s a link to the full article:

Financial Post – Real Estate: A Secret Tax Shelter

Did you spot it?

The problem is there is simply no money to be made by financial professionals when it comes to rental real estate. The result is that rental real estate is a secret tax shelter that few people ever consider. – Jason Heath, Financial Post

Wow. Now there’s something you don’t see every day posted in a newspaper like the Financial Post. I wonder if their sponsors and advertisers will give them flack over this? (many of whom are likely brokerage firms, mutual fund companies, etc.)

What do you think? Do you think there’s any truth to that statement?

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Paul Blacquiere

Founder and Editor at Spirepoint Wealth

Paul is an entrepreneur, investor, speaker, educator and publisher. He is founder and editor at Spirepoint Wealth, a financial education company dedicated to helping people improve their finances, create more cash flow and build long-term wealth.

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Rick Chase says:

Paul:
I like what Jason says and, as a very poorly informed real estate investor, find no fault in the benefits of RE investing as a tax reducer, given the proper variables.

Paul Blacquiere says:

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There are quite a few more tax strategies that are not mentioned (of course — it’s only a basic overview). I do like his comparison to RRSPs as a tax deferred savings vehicle.

There’s one thing though that will never happen in your RRSPs…. your tenants will never pay it for you, unless your rental property. +1 for real estate 🙂

Craig Money says:

I believe that all of that article to be true. When you take that small quote, with out the rest of the article, yeah it sounds controversial. However I do agree with the article.

Thank you for sending me that one.

Paul Blacquiere says:

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I wasn’t trying to misquote or mislead anyone with the small quote. It’s just that I find almost no one mentions that fact, and I find it amazing to see it in an online newspaper like the Financial Post, where many of their advertisers are mutual fund companies, stock brokerages, etc. Usually these types of publications don’t want to ‘upset’ their biggest advertisers…

Jennifer Walker says:

Do they mean realtors who rent out RE for clients? Realtors selling multi-units??? None of the sentences jived. If it’s so secret, then why do we have multiple offers on almost every duplex-8plex here in Montreal.

Paul Blacquiere says:

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I think that part was referring to the majority of real estate transactions. Investors actually account for a very small percentage compared to the total number, and realtors that cater to investors are a minority as well because again, the bulk of the transactions are in standard residential.

The majority of Canadians, when deciding where to invest their RRSPs and other cash, don’t typically look to real estate or RRSP mortgages… they usually just call their bank or favourite mutual fund company, invest the money, and forget about it. It’s a very ‘sanitized’ investment.

Since the bulk of the money goes there, and (as the article author is saying) financial planners and insurance agents don’t get paid to refer people to real estate, it remains a relative ‘secret’ compared to other investment types.

I think that’s actually a good thing for us as investors, because if 80% of Canadians wanted to invest in real estate, prices would be absolutely insane (it’s the supply and demand effect). Now as a realtor on the other hand, that would be a good thing because commissions would go up 🙂

Robin Menaar says:

I think that there is a lot of truth to his statement. I think he took a bit of a step out there with this article. Most Financial Planners will not recommend Real Estate because they won’t get paid on it. Just like most Realtors won’t recommend other financial products because they won’t get paid on it. There are some financial planners who have figured out that if they work with investors to pool their money and invest in Real Estate, they can charge a commission. Just not the mainstream financial planners. Great tax shelter!

Paul Blacquiere says:

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Good to hear from you Robin! How are things in Winnipeg?

I think most people go with the line of least resistance. So if they’re trained as a financial planner, they will recommend products and services they are licensed to sell. Same thing for insurance agents and real estate agents.

It’s just too bad (on the financial planning side of things) that most people will never understand or be exposed to the benefits of real estate… it definitely is a great tax shelter (among other things).

- Robin Menaar says:
  
  at
  
  Hi Paul,
  
  Things in Winnipeg are doing well. It is a busy market here again this year. Demand is high and supply is low. Makes for a busy time for me, but I am not complaining.
  
  Looks like Canada is doing well as a whole and some areas better than others. I expect prices to stay strong here for the next while. It is nice to live in an area where prices don’t drop very far. Pretty steady as they go here.
  
  When are you coming back to The Peg?
  
  - Brian says:
    
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    I to Paul would be very interested in seeing you and talking and learning more and more about real estate. Just about to have 4th property and 8 doors in our investment portfolio. and have a very good team helping me. I bet a lot of people out there do not know about the 6 profits centers. Using the equity in there home to invest, or do not know to. Lots have them have thousands and more in of dead equity don`t know what to do.
    Being in a investment group is very helpful.
    
    - Paul Blacquiere says:
      
      at
      
      Hi Brian,
      
      I have no plans at this time for live training in Ottawa or Winnipeg, but if I change my mind, I’ll let you know 🙂
      
      And I agree… investment clubs are awesome to learn from. We’ve got one of the best ones in the country — the Ottawa Real Estate Investors Organization (OREIO). I’ve been a member since 2002.

Paul Blacquiere says:

I know there are other tax ‘loopholes’ available, but real estate is one of the few that combines a bunch of them together, all while your tenant pays off your asset. Pretty cool!

Dave Peniuk says:

Thanks for sharing that article Paul! Wow – it was not only refreshing to see a “pro” real estate investing article in the FP but also it was extremely well written and understandable.

I agree 100% with your comments Paul around that most Cdn’s don’t invest in real estate. In most cases, it’s because people don’t really care about their money. They say they do, but if they did, they would take better care of it and invest it more wisely rather than handing it over to their “investment advisor” at their local bank and use the HAP (hope and pray) strategy. It’s really a shame.

As Julie and I always say, no matter what investment you’re in, you have to stay ACTIVE in it. The more you play a passive role, the more you are likely to get poor returns.

Great post and thanks for sharing. We will pass this article along to our readers as well as it’s a very important one!

Cheers,
Dave

Art Kingma says:

Hi Paul,

Another great example of why it’s important to be in the real estate game (real-life monopoly) rather than only reading about it. I’ve never been “advised” by my financial advisor to purchase real estate, however in fairness, he has given me some some insight as to how to use insurance to offset the cost of capital gains taxes when you include property in your will; but of course there again, he would profit from the sale of the insurance policy, not the actual real estate.

The general public is just not educated as to these many benefits of real estate. We all need to assist in getting the word out.

Great post, glad you nabbed this one & brought it to our attention (again!)

Edna Keep, CFP says:

Great article Paul. As a Certified Financial Planner and Real Estate Investor, I have found a way to help clients own Real Estate. I Joint Venture with them and/or assign particularily great rental properties. I find that the busy people I deal with do not have the time, interest or education to get into Real Estate on their own.

Grace DeLavoye says:

I agree with the Financial post writer that real eatate investing is a “secret” tax shelter, and even more so if held in a corporation. I am a recent (3 years) investor and have 11 doors in my portfolio. I also want to use my RRSP to invest in morgages but am wondering how to find qualified investors to partner with.

Snez Marosan says:

Hi All – Although I’ve been looking at real estate investing (and have one investment) for years and reading as much as I can, I’m still fairly new to the whole thing. In reading these posts I realized I don’t have a really GREAT financial planner.

Any recommendations?

Many thanks,
snez

Grace says:

HI Paul,
I have a tax related question related to selling one of my investment properties.It is a legal non-conforming triplex (classified as single family residential) that I hold in a property corporation. What I need to know is – will the sale be subject to HST and if so, what can I do to mitigate the HST remittance to the CRA. Does the rule of business profits less than 30K not being subject to HST apply here? I will be grateful for any feedback.

Paul Blacquiere says:

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Hi Grace,

From what you are saying, I don’t believe you will owe HST unless you are charging commercial tenants where HST is charged on rents, or your corporation is in the business of buying and selling commercial properties.

Another thing to watch for is where you have substantially renovated this triplex to the point where CRA would deem it be subject to HST on resale. Note that the word “substantial” is a bit grey, but if you’ve completely gutted a property and everything going into it is brand new, making it virtually the same as someone buying a brand new property, it would be hard to argue against this case.

Re the $30k rule, that’s an income threshold recommendation by CRA for you to decide whether or not you will register for the HST. Keep in mind that most residential real estate investors will never have to register. Even if you did, you would not be paying the HST… the buyer would be. And you would get HST Input Tax Credits (ITCs) on all your purchases, which would offset part of the HST due to CRA.

As you can see, the HST rules can be complicated (as with all tax laws). I recommend you consult an accountant to help you determine what you need to do and to help make any decisions.

I hope this helps

Paul

- Grace says:
  
  at
  
  Paul, thanksso much for your very detailed reply! Your answer is exactly what I was looking for. I asked my accountant the same question and she wasnt really sure so she was going to “find out” for me. I figured I better ask a real expert! thanks again.
  
  - Paul Blacquiere says:
    
    at
    
    You’re welcome Grace. I’d be careful about using an accountant who has to go learn what the HST rules are for real estate (heck, YOU could do that with Google!).
    
    I recommend you find an accountant who has real estate experience and preferably is/was an investor themselves.
    
    Paul

Brian says:

I really like that comment. An it does speak the truth. Because they say they can`t make money off the investment. And a lot of them will say real estate is to risky. I say not. Real estate is not for everybody that is for sure. More later.

Paul Blacquiere says:

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Thanks Brian. Yes, there are people who say real estate is risky. And it can be if…

1) you buy too high

2) you over-leverage with too much debt with no plan to reduce it later.

3) you don’t maximize your income, minimize your expenses, and watch your cash flow closely

All of these will increase the risk on your investment.

Real Estate a ‘secret’ tax shelter