Below you'll find a few common Real Estate terms and definitions to assist you.
Refers to gains from the disposition of capital property, a percentage of which must be added to taxable income on the disposition of the asset. Capital property includes any item from which a capital gain or loss would be realized and includes depreciable property. Calculations can vary based on the type of property and the circumstances surrounding the investor/owner.
Capital gains vs taxable income
The taxpayer is responsible for reporting the gains as either income or capital gains. The determination will be made based on a number of factors, such as the intention of the taxpayer, relationship to the taxpayer's business, the frequency of transactions, length of time held, nature of the transaction and objects of the corporation.
Exemption to the payment of capital gains
The major exemption to consider involves a principal residence. A principal residence is defined as a house, apartment in a duplex, apartment building or condominium, cottage, houseboat, trailer or mobile home or shares in a co-operative housing corporation.
Note: To qualify as a principal residence, certain criteria must be met.
Is a loss that is incurred from the disposition of capital property.
Are the proceeds received from the sale of an investment property.
Capital cost allowance for depreciation
Is “a tax deduction that Canadian tax allows a business to claim for the loss in value of capital assets due to wear and tear or obsolescence.” (Canada Revenue Agency – CRA)
Cash flow negative
THE ARRANGEMENT UNDER WHICH THE CASH OUTFLOWS DURING A PERIOD ARE HIGHER THAN THE CASH INFLOWS DURING THE SAME PERIOD.
Cash flow positive
The arrangement under which the cash inflows during a period are higher than the cash outflows during the same period.
Cash flow neutral
The arrangement under which the cash income derived on an investment property equates to the cash expenses and outgoings incurred on the property.
Refers to the monetary value of an asset decreasing over time due to use, wear and tear or obsolescence.
Are the costs incurred in owning a property.
Three words you need to know now
Your best friend in reducing your taxable income, thus reducing your tax liability.
Return on investment in a property. Understanding the relationship between yield and property value is crucial in making sound property investment decisions.
The LVR, or ‘loan-to-value ratio’, provides valuable information on how much equity is available in a property which could then be used to invest in additional properties.