Our projects are structured to deliver significant tax advantages to investors. Over half the cost of the investment may be deducted from pre-tax income in the first year, with additional lesser writeoffs in subsequent years.
This is possible because our projects are offered as limited partnerships. Costs associated with upgrade of the property and syndication are transferred to investors as a 100% tax writeoff. Capital Cost Allowance (CCA) may also be written off in each year as the project progresses, to reduce or eliminate taxable income from the project.
Investments in limited partnership units can also be used to facilitate income splitting, intergenerational wealth transfer, and estate planning. A high income earning individual can take advantage of tax writeoffs in the early years of the project and then, at the appropriate time, transfer the unit to a spouse, partner, or child in a lower tax bracket who can receive the income. Units may also be transferred to a trust at the optimal point, after tax writeoffs have been taken, to minimize future capital gains tax while still allowing an income stream and assets to be passed to a child, grandchild, or other beneficiary.
These investments are an excellent alternative, or supplement, to RRSP-eligible investments in that they afford additional tax relief over and above what is available with an RRSP, and provide long-term income into retirement. More importantly, these investments are not subject to some of the disadvantages of RRSP-held investments.
Limited Partnership Unit
|Interest on money borrowed to invest in RRSPs is not tax deductible.||Interest on money borrowed to invest in limited partnership units is tax deductible.|
|Capital gains and dividends lose their special treatment when held inside an RRSP, and are subject to taxation on the full value when the proceeds are withdrawn.||Capital gains have preferential tax treatment - taxes only apply if the property is sold or otherwise disposed, and are applied to only 50% of the increase in value since the property was purchased.|
|RRSPs must be converted at age 71 to RRIFs.||Real estate ownership has no time limit.|
|RRIFs require a minimum annual withdrawal. Capital eventually depletes.||Income from ownership in a property does not decrease over time but actually increases, often ahead of inflation. No depletion of capital - the underlying value of real estate grows.|
The entire principal invested in an RRSP or RRIF is considered as income and subject to income tax in the year of the holder's death (except where the RRSP or RRIF is transferred to a partner or spouse).
Only 50% of the difference between fair market value and adjusted cost base is taxable as capital gain upon death. This may be avoided if the unit is transferred to a partner or spouse.
- Significant tax relief
- Opportunities for income splitting
- An excellent vehicle for intergenerational wealth transfer
- Favourable tax treatment in comparison with RRSPs
Tax circumstances differ for each individual and tax rules are subject to change. The information presented here is a general tax commentary which may not apply in every case. Always seek advice from a professional tax advisor when considering investments for tax planning.