Did you all have a great long weekend?
Canada Day long weekend is always special in our family.
My wedding anniversary is on this weekend, while my son’s birthday is also close enough that we all get to celebrate everything all at the same time.
As a thoughtful wife, I knew that my husband would not have remembered our anniversary. I decided to send him a calendar invite earlier during the week so he would have been fully prepared. 😉
Haha, these are the things you would do when you’ve been in the relationship for a long time.
We ended up visiting a local restaurant less than 5 min away from our home. We didn’t make a plan in advance (the calendar reminder trick didn’t quite work with Erwin, LOL!). The only space available was the bar table and the high table alongside the kitchen.
We chose to sit at the high table facing the kitchen, against our hostess’ advice.
It’s a lot of fun just watching how these 4 chefs, systematically and methodically, cook. A restaurant kitchen isn’t really a relaxing environment. It’s more like a manufacturing plant.
We had 1 special treat from the chef, 4 appetizers, 1 entrée and end it with the perfect slice of cheesecake. If you wonder how the two of us could finish so much food, Erwin is *always* the reason how we can finish so much food! 😉
We’re so grateful that this fantastic restaurant is located within 5 min from our house. We could have biked there!
That was the beginning of our celebration.
We hosted two parties back to back to celebrate Bruce’s birthday! Lucky boy! As always, we had a blast!
How did you celebrate your Canada Day long weekend?
As I’m doing my usual court case reading in preparation for today’s blog post, CRA recently provided its view on cash back received on a home purchase.
When we talk about the cash back incentive, it is the payment issued by the real estate brokerage to the home buyers/sellers.
I’ve done multiple presentations on this exact topic to many realtor groups before and I was eager to check out what CRA’s *official* opinion is.
From the brokerage and the real estate agents perspective, when you represent a client to buy or sell a property, sometimes, you may offer a cash back incentive to your client as a thank you gesture.
Income Tax Act allows business owners to deduct reasonable expenses that they incur to generate the business income, subject to a bunch of exceptions.
Cashback incentive meets this criteria. In most cases, these cash back incentive would not have been given if the real estate transaction does not occur.
Brokerage makes commission income and pays cash back incentive. In my opinion, 100% deductible. CRA agrees too!
Now, what about the buyer/seller receiving the cash incentive? What’s the tax impact on them?
Well, if the transaction is related to a primary residence sale/purchase, chances are, the cash incentive received is not a taxable income.
If the transaction is related to the purchase/sale of capital property (long-term rental is a good example), the cash incentive would likely be used to lower the cost of your purchase or added to the sales proceeds of your property. In both cases, your capital gain is higher.
You’re paying some tax as a result.
CRA concurs with this as well!
If the transaction is related to the property that you intend to flip, this cash rebate would have to be reported as business income. And of course, this means you will have to pay tax on this income.
Don’t get me wrong. Just because you’re paying tax on this cash back incentive, it’s always a good thing to pay tax. Paying tax simply means you’re making money!
And if your intention is a flip, all you need is to make sure you have proper tax planning in place so you can take advantage of the low tax rate 12.5%.
Until next time, happy Canadian Real Estate Investing.
Cherry Chan, CPA, CA
Your Real Estate Accountant