Real Estate Investing and Tax

1. Real Estate Investing and Tax Presented by and Smart Home Choice

2. Agenda • Introduction • Calculating Net Rental Income • Financial Tips • Q & A Session

3. Introduction • Purpose of this seminar: • Material is relevant to anyone who wants to actively invest in real estate • Help familiarize yourselves with BASIC taxation as it applies to real-estate investing • Illustrate how to ORGANIZE your data for your accountant • Understand the common financial pitfalls that some novice investors make

4. Introduction • Campanella McDonald LLP • 2 Partner firm • Concentration on: • Small to Mid-Sized Businesses • Self-Employed/Commissioned workers • Active Investors with mid to high value portfolios • Goal: To pro-actively assist clients with • Accounting • Taxation • Financial Advisory

5. Introduction • Fabio Campanella, CPA, CA, CFP, CIM • BA – York University • CA – Ontario • CFP and CIM • Started in 2002 • Work history: • Price Waterhouse Coopers – Audit, Tax, Corporate Finance • Harmonic Fund Services – Hedge Fund Controller/Consultant • BMO Nesbitt Burns – Investment/Insurance Advisor • CGA Canada/Seneca College – Corporate Finance Instructor • Columnist for the Financial Post

6. Calculating Net Rental Income • There is a big difference between: • Net Accounting Income, • Net Taxable Income, • Net Cash Flow • In this seminar we will concentrate on calculating “NET TAXABLE INCOME” and showing it’s effects on Cash Flow

7. Calculating Net Rental Income • Net Taxable Income • Based on adjusting accounting income • Application of Income Tax rules/laws/standards • Affects final accounting and cash flow numbers • The basic equation is: • Add: all forms of taxable revenues • Deduct: all forms of allowable expenditures

8. Calculating Net Rental Income • Step 1: Identify Revenues • There are three main types of revenue • Rental Revenue • Recapture of CCA • Capital Gain • # 1 and # 2 are subject to full taxation • # 3 subject to ½ taxation

9. Calculating Net Rental Income • Step 1: Identify Revenues • Typical “rent to own” structure has several cash flows:

10. Calculating Net Rental Income • Step 2: Identify Allowable Expenditures • The general “rule” is that any expenditure used to generate revenue from your investment can be considered “allowable” • There are certain exceptions • Amounts spent to “setup” your property • Amounts spent to “improve” your property • Amounts spent to obtain financing for your property

11. Calculating Net Rental Income

12. Calculating Net Rental Income • Let’s look at a typical 3-year “rent-to-own” deal. • First, we will calculate the purchase price and establish the mortgage • Second we’ll calculate the taxable income and tax liability for a 3 year rental period • Third we will calculate the eventual sale price and related tax consequences • Fourth we will look at the cash flow from purchase to sale

13. Calculating Net Rental Income

14. Calculating Net Rental Income

15. Calculating Net Rental Income

16. Calculating Net Rental Income

17. Financial Tips • Project and adequately manage your cash-flows • Keep an emergency reserve • Keep adequate records and documentation on tax deductible expenses • File your taxes early, properly, and use a professional • Understand how your investments will affect your estate

18. Q & A Session Q & A Session Smart Home Choice Inc.