Buying or selling vacation property in Canada is more complex than some think.
With increasing digitization and connectedness, identities have also been obscured.
This is why identity theft and other kinds of scams have become highly advanced, and fraudsters are modernizing their ways and means of operation.
Similarly, property investments involve lots of money, and there can be instances of misleading claims and promises on the part of contractors, sellers, and buyers, which can cause problems in future.
Moreover, with the ever-changing laws, one must be vigilant when investing large chunks of money and property to see if it will pay off.
This blog looks at various aspects and legal considerations of buying or selling a vacation property in Canada.
That offer to buy your timeshare may be from a Mexican drug cartel
Of particular consideration is that you do not live in your vacation property permanently. This is why many new and more organized gangs have gotten involved and are using fraudulent identities and new kinds of scams to take away your money. It is even more related to those vacation properties, like in Mexico. In one such example, Rod and Diana lost about $200000 and their marriage to such a scam. Members of the drug cartel, personified as dealers, lawyers, and agents, made persistent calls and signed agreements with them. They also charged them thousands of dollars for made-up taxes and other expenses. In the end, the couple lost vast sums of money, and according to CBC News, they lost their lifetime savings.
Look before you leap
There have been many examples of buyers giving money to a construction company that promises to deliver a vacation home at a specific time. Still, many times, they do not honour their promise. In one such incident, which CTV News reported, a company from Saskatchewan took the lifetime savings of a couple amounting to 175000 but never delivered the condo they promised. Therefore, you should thoroughly inspect the company’s background and look at its track record before investing your sum.
The couple now believes they were a “fool” who spent so much money on something that never existed.
Check if the contractor is reliable.
There have been occurrences where the buyer, when visiting the site, found that the workers were smoking weed and meth or sometimes working with no safety gear on.
Not having a seasoned and experienced contractor can lead to delays and jeopardize the whole project.
Pay only through a bank account and keep the receipts safe.
Avoid cash payments. The better your records, the safer you are. The constructor or seller may demand payment in cash, mainly if he is not well-established in the market. This should also sound alarm bells for you, and you should reconsider your plans.
Beware the taxman
In Canadian laws, vacation properties are considered investments. This is why most of them bring tax liability. You should not forget that the new capital gains law has increased the taxable gain from half to two-thirds. In this way, it can cause tax liabilities when you finally sell your vacation property.
You can declare your Cottage as a primary residence before you sell it
How to dispose of your vacation home
- Could you transfer it to a beneficiary?
Well, you can certainly transfer it. But you should know that you will lose control over the property during your lifetime. Also, in case of a transfer, the two-thirds capital gains inclusion rate will come into action and become costly for you.
- Can you transfer it to trust
It is also a good option because it will enable you to retain some control over the property during your lifetime.
However, the capital gains tax will become payable at the transfer time.
Similarly, the new laws related to mandatory trust reporting will also make it crucial for you to make an extra effort.
Moreover, the 21-year deemed disposition rule now applies to trust. So, check whether during your lifetime, it will come into action, and you will have to pay the capital gains tax.
Should you hold it until death?
It might be a viable option, but you should know that the deemed disposition rule will demand payment of capital gains tax on all your properties at the time of death.
It would help if you calculated whether your estate will have enough liquidity at your death to pay these taxes.
To research and do due diligence
It is one of the most important steps when buying a home in Canada. You must conduct a title search and see whether the seller has the legal title to the property. Ensure there are no liens, mortgages or unpaid taxes, including any other encumbrances. It is a mandatory requirement and will protect you from future claims.
Review by Counsel
You must consult your legal counsel throughout the process. He should also review your agreement of purchase and sale to ensure that the terms are clear and that no conditions can cause problems in the future.
The odds are in your hands only until you have made that one decision. When dealing with vacation property, ensure you are quick with the information and skills needed to ward off any unwanted troubles in the future.
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