The Alberta Budget And Taxation For Your Rental Property

The proposed Provincial Budget for 2019 has a number of items that are of note for people who own investment real estate. In a precious article, we talked about how investment property owners may be impacted should the budget pass. That article focuses on different measures that will impact your costs. This article focuses on how the new budget impacts your tax position as an owner.

As a disclaimer: Amhurst manages rental properties for owners, and is not a tax authority, income tax specialist, or The Government of Alberta. This article is not written to provide tax advice for your situation, nor can we accurately predict what the government will do next. Please consult your accountant or tax professional for advice on your specific situation.

Corporate Income Tax Reduction

This is a big one for owners who hold their rental property (or properties) in a corporate structure such as a hold-co, corporation or other incorporation structure. The Alberta Government decreased the corporate tax rate from 12% to 11% on July 1, 2019, and has announced a further decrease of one percent per year each year until 2022. Decreasing corporate taxes to 8% in 2022 will make Alberta the province with the lowest tax rate in the country, and will give Alberta a lower combined (federal and provincial) tax rate than 44 American States (page 8).

In doing so, The Alberta Government will be looking to make Alberta a more competitive place for people to invest. This is important for owners who hold their real estate in a Canadian Controlled Private Corporation (CCPC) and who are seeing positive cash flow. This move decreases the income that your corporation would pay on income made over the course of the year, and also would decrease the capital gains tax if you sell an investment property.

The government also announced that they would hold the small business deduction at 2%. Small businesses are currently taxed on active income up to $500,000 at this amount. Because it is active income, rental income would not apply nor likely would selling a rental property. Discuss this further with your tax accountant to see if this is applicable to your situation.

Increasing the Capital Cost Allowance

Houses are not designed to last forever. Over time, the physical building depreciates and upgrades are made. The Income Tax Act allows for individuals and businesses to claim the depreciation on the value of a capital expenditure based on a fixed formula.

The current budget allows for an accelerated capital cost allowance (CCA), in line with the Federal program already in place. While currently unclear, this likely will not apply to new purchases of income properties. It seems to be geared towards capital for clean energy and more active income ventures. Specifics on this matter may be introduced down the line, but it appears to be more clearly for other capital programs. As noted above, speak with your tax adviser to see if this is something worth doing in your situation.

Municipal Funding and Property Taxes

In today’s economic climate the government says on page 129 that ” When hard-working Albertans see their incomes shrink and struggle to make ends meet, they have to face their fiscal realities – and so do governments “. The Province will cut municipal finding quite substantially. This includes cuts to operating funds, grants programs, capital projects, transportation projects and more.

In order to make up for a shortfall in revenue, expect property taxes to increase substantially next year. This likely will hit both commercial, owners who have already seen huge increases in the past year, as well as residential owners.

Expect in the new year that your property taxes will increase, but with the economy where it is, it may be tough to pass the cost on to your tenants. At Amhurst, we constantly watch the market to determine where and when rents can be increased. If the market does improve in the new year and the prevailing market rents increase, it would be ideal to pass any increase on to your tenants, but it is unlikely at this point. This may be a landlord cost for the foreseeable future.

The Bottom Line

At the end of the day, there is a little bit to like for owners, especially those who own their properties in a corporate structure, as well as a little bit not to like, in terms of increasing property taxes. This budget is a big step for the province in terms of fiscal pruning, but expect more significant changes in the upcoming Federal Budget.

Photo courtesy of Jason MacIntosh of The Canadian Press

HOW DOES A LANDLORD MAKE A PROPERTY “RENTAL READY” ?

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When you have a tenant that moves out of your rental property, it is imperative that the property is made ready to be re-rented. Landlords often think a property will rent as it is but this is not the case in general markets and certainly not the case in soft markets.

Here are five ways to make your property rental ready:

  1. Clear the house of unwanted items, from both inside and outside the unit. Remember, a clean curb appeal is important when you are trying to rent a house. Thorough cleaning of the unit is vital. This includes walls, floors, light fixtures, doors, frames, baseboards, walls and trim. Give special attention to bathrooms and kitchens, which are the main selling feature in any home.

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  1. Freshen the paint if required. Painting is an area owners often leave unattended, but it is a very important deciding factor for tenants. If the walls look tired, blemished, and marked, the tenant will go elsewhere. Refreshing the walls (and trim if required) can make the difference between renting the place and having it vacant. Coloured walls are typically less appealing than neutral colours. Most tenants tend to prefer neutral colours such as taupes, creams, and greys.

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  1. Attention to detail in such items as light fixtures, plug and switch plates, door knobs, and other details is imperative. If prospective tenants come to see your rental property and notice that it is missing items such as curtain rods, blinds or other items, they may pass judgment on your standard of care as a landlord. This will detract them from renting your home. Little things like a rusted shower curtain rod, a dowdy looking drape, a plug outlet with a broken cover, a stained toilet or toilet seat, can make the difference between them renting your property and going elsewhere. Think seriously about these matters as renting a house is an emotional exercise; the little things turn people away.

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  1. In cold weather, do NOT turn the temperature down in your vacant suite, just to save on heating bills. A cold house has a negative impact on potential tenants, as it does not have the homey feel. Keep the temperature above  18 degrees, so as to ensure the property feels inviting.

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  1. Finally, if something appears like it needs a renovation or replacement, such as dowdy counter tops, or cabinets or blinds, just DO IT! Tenants do not want to live in a place that feels older or poorly taken care of. It is worth putting in the time and money to keep your rental property up to date so as to maintain a steady cash flow. Sometimes, your delay in this area can leave you with a vacancy for longer than you know.

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Amhurst specializes in making your rental property rental ready! Do not hesitate to contact us for more information.

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Tenant Retention: the Lifeblood of Good Property Management

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Anyone interested in Calgary property management knows the objective of real estate ownership is to recognize cash flow when not heavily leveraged, and to enjoy capital appreciation.

In a normal economy, we see a bit of both. In recessionary times, we see a dip. Overall, in a long term strategy, we see both.

How to Keep Good Tenants

A prudent property owner recognizes that tenant retention is critical, yet cash flow and appreciation is just as important. In order for the property to remain fluid and for the property to appreciate one needs to be cognizant of the fact that the landlord must provide the tenant with good service, and keep up the property. This is the dilemma that professionals deal with all the time.

When To Increase Rent?

In this arena, we ask about rent increases. If the market is a landlord’s market, we can seek to gain a small increase based on the strength of the market. In a tenant market, we are often faced with struggling to retain the tenant, who might be looking to leave unless we have been good to them, and the property has been optimally maintained.

Landlord Fairness

I have found that if a landlord is fair and just and prudent, a small increase regularly provides stability and longevity of tenancy. This stability and longevity is the lifeblood of good landlord practice. Short term “rent grabs”, in my opinion, provide only short term successes.

Rental Customer Service

I am a strong proponent of good tenant customer service at all times, regardless of the state of the economy, as well as consistent property upkeep and maintenance. The investment in real estate has to be a long term strategy, and rent increases have to be tempered with long term thinking and planning.

Ability, Stability, Longevity

If you three words guide your relationship with a tenant: ability, stability and longevity, there should be little else that would stand in your way in retaining good tenants for the long haul. At Amhurst, our retention rate has been greater than 90% over the past ten years and we believe it’s our focus on good service and good maintenance.