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  • 2012 (11)

Learn Before You Leap – Moving Costs to Keep in Mind

Upfront Costs

• Deposit: up to 5% of the purchase price, made when you make an offer to purchase.

• Down Payment: 20% of the purchase price is required for a conventional mortgage.

• Home Inspection Fee: generally $500.

• Prepaid Property Taxes and or Utility Bills: to reimburse the vendor for prepaid costs such as property taxes, filling the oil tank etc.

• Property Insurance: covers the cost of replacing your home and its contents.

Property insurance must be in place on closing day.

• Survey or Certificate of Location Cost: $1,000 to $2,000 range.

• Legal Fees and Disbursements. Must be paid upon closing. Minimum of $500.

• Land Registration Fees: a percentage of the property’s purchase price. Check with your lawyer/notary to find out the current rates.

• Property Appraisal Fee: between $250 and $350.

• Moving Expenses.

• Additional items

 

Other Costs

• Appliances

• Service connection fees: Charges for utilities, telephone, gas, electricity, cable TV, satellite TV, Internet etc.

• Renovations or Repairs

• Window treatments

• Decorating materials

• Snow-clearing equipment

• Gardening equipment

• Dehumidifier

 

Condo Costs

If purchasing a condominium, there will be some fees in addition to the ones mentioned above. They are:

• Estoppels Certificate Fee: up to $100

• Initial payment of the monthly condominium fees

Learn Before You Leap – Mortgage Information You Should Know

Owning your own home is an exciting proposition. But before you can know whether homeownership is right for you, it’s important to understand what’s involved.

The worst mistake you can make as a new homeowner is to buy a house that ends up over-extending you financially. The key is to make sure that you can comfortably afford the mortgage payment and other monthly expenses that come with homeownership.

How Much Can You Afford?

The first thing you need to do is figure out your net worth. Your net worth is the amount left over once you’ve subtracted your total debts from your total assets. This can work as a guide to show you how much you can afford as a down payment.

Prepare A Budget

Next, prepare a budget. Detail all of your current monthly expenses and debt payments. Be as accurate as possible. Add everything up and then subtract this amount from your monthly take home amount. This will then give you a clear idea of how much you can truly afford for a mortgage payment each month.

Monthly Mortgage Payments

Just like when you rent, as a new homeowner, you will have a monthly payment to make on your mortgage. The size of your mortgage payments will depend on your down payment, the amortization period (25, 30 or 35 years), the term (fixed rate, variable rate) and your payment schedule (bi-weekly, bi-weekly accelerated or monthly).

The Downpayment

In order to buy a home, the first thing you will need is a down payment. The more money you put down, the less interest you will pay over the life of your mortgage. The minimum mortgage down payment amount that is typically required in Canada is 5%. In order to put less than 20% down, mortgage default insurance is required.  Mortgage insurance premiums are paid once, but can be added to the principle of the mortgage.


                                            
                                        

Transferring Property to a Corporation or Partnership

Transfer to a Corporation

-Certain transfers to a corporation can take place on a rollover basis given that the following criteria is met:

  1. The corporation receiving the property must be a taxable Canadian corporation;
  2. The consideration of the property transferred must include at least 1 share from the corporation;
  3. Transferred property must be eligible property. Does not include real property owned by non residence or land held as an investment.
  4. The taxpayer and corporation must complete form T2057 and file the next tax year by the individual or Corp.

-The taxpayer and the corporation are allowed to set the transfer price. The set price determines the disposition for the taxpayer and the adjusted cost base for the corporation.

-The general rule is that consideration should not exceed the adjusted cost base of the property as this would not trigger capital gains.

Property Transferred to/from Partnership or Proprietor

-Generally property transferred to a partnership is done so at FMV. However, the ACT allows a tax free rollover where a joint election is filed and consideration contains interest into the partnership.

Income Attribution Rules: Loans and Transfers

Spouse

If property is transferred from a taxpayer to his/her spouse it will result in:

-any income or loss from the property will be attributed to the taxpayer; and

-any net taxable capital gain or allowable capital loss resulting from the disposition of the property will be attributed to the taxpayer.

Attribution does not apply for property that is transferred for its fair market value. The taxpayer may loan his/her spouse money for the transfer purchase but the loan has to meet certain criteria in order to avoid attribution:

-a written agreement must be developed that highlights the specifics for the repayment of the loan;

-the borrowing spouse must pay a interest rate greater then, or equal to the lesser of:

  • the prescribed rate of interest; or
  • a rate that is reasonable for parties dealing at arms length; and

-the borrowing spouse must make a loan interest payment no later then 30 days after the taxation year. If interest is not paid back during the proper time any income earned during the year and all future income will be attributed to the taxpayer.

Eligible Capital Expenditures

Eligible Capital Expenditures refers to intangible item such as:

  • goodwill;
  • trademarks;
  • customer lists;
  • government rights;
  • incorporation and reorganization costs; or
  • farm quotas.

CEC Account

75%, representing the inclusion rate, of all eligible capital property is added to a notional account called the Cumulative Eligible Capital Account (CEC). At the end of the taxation year, the taxpayer is allowed to deduct 7% of any positive CEC balance from business income. This deduction is referred to as amortization; the taxpayer has the ability to deduct up to the 7%. If the taxpayer has multiple businesses, each business would have its’ own CEC account.

Disposition

If the taxpayer disposes of eligible capital property there is a credit to the CEC account equal to 75% of net proceeds (proceeds of disposition (-) cost of disposition). The ACB is not accounted for in this situation.