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Buying a Condo (5)
If you are considering buying a condominium, it may be one of your largest financial investments so please make sure you research before signing on the dotted line
Buying a Resale Condo
Buying a Condominium in the Resale Condo Market
Buyers must understand condominiums before buying! "Condos are a complicated purchase, first you must learn about the financial implications of the Condo" says Linda Pinizzotto, Sutton Group Realtor and Founder | President of COA the Condo Owners Association. It's time to invest in Real Estate but make sure you understand condominiums and work with a specialist.
Buying a Condo
Condominium Buyers must have knowledge relating to Condominiums, Condo Documents, By-Laws and Rules and Regulations of a Condominium.
Considerations when Purchasing
- Review the location of the Building and the direction the unit is facing
- Note any vacant land and/or parking lots - old buildings next door for possible tear down
- Review Layout and Design, both living space, balcony or terrace
- Check kitchens and Bathroom for water leakage under sink and around taps
- Check toilet; note if energy savings and/or dual flush
- Check all appliances
- Check caulking around windows (ie moisture)
- Confirm the Maintenance Fees
- Review the proximity of the elevators and garbage chute
- Check if the building has energy features and tri-sector garbage chutes
- Check if the building has sub metering for heat and/or hydro
- Check light fixtures ie capped in ceiling and/or wall switches
- Ask about the amounts of keys, fobs and mail box keys provided with purchase
- While you walk through building keep an eye for cleanliness and condition
- Note condition of elevators and license date (in every elevator)
- Keep an eye for Management Notices to see whats going on in building
Agreement of Purchase and Sale
- Have the Sales Representative explain the Agreement of Purchase and Sale
- Ask If this is an Assignment - buying before the Building is registered
- Ask Agent to explain Schedule A for Terms of the Agreement of Purchase and Sale
- Determine closing date and chattels /extras included in price
- Ask Sales Representative to include a clause that all appliances will be in working order
- Check parking space and/or locker spot if included in Agreement
- The Agreement of Purchase and Sale should be conditional upon your Lawyer reviewing the Status Certificate (see below)
Condominium Documents
Have your Solicitor Review during 2-3 Day conditional period
- Your Offer to Purchase will include a condition relating to obtain a Status Certificate which includes the Buildings Condo Documents ie Declaration,
By-Laws , Rules and Regulations, Financials, Building Insurance Policy and letter signed by a Board Member - Note: According to the Condo Act, Property Management has 10 banking days to provide Status Certificate
- Your Offer will also include a clause stating that the Offer to Purchase is conditional upon your Lawyer's review of these Documents, generally 2-3 banking days. If your lawyer approves you will be waiving the condition of review of Status
Questions to ask your Lawyer- Ask if there is any restrictions in the Documents relating to ie. Pets, Barbecues
- Ask about Short Term Rentals and if they are time sensitive or unlimited
- Ask if the Corporation includes any affordable Housing units
- Ask if there are any leasing equipment ie. boilers, communication room etc.
- Ask if the full Parking Garage is Owned by the Corporation
- Your lawyer should be able to check all information noted above
Sale Finalized - Lawyer Reviews Documents
- Once the sale is finalized and the conditions are removed
- Book your Elevator with Property Management - may require a deposit
- Register as new Owner with Property Management
After you Move In
- Bring your new Fob transmitters to Property Management to program for you
- Remember Go to your Annual General Meetings
- Stay involved with your Condominium Building - Know your Directors
New Mortgage Rules
Effective January 1, 2018, Canadians who may be renewing, refinancing and those looking to obtain a mortgage have to show they can pay any new interest rate substantially higher than the current rate they have. This routine is called a stress test which is applicable to our Canadian Banks however many Credit Unions do not follow the same path. The new Canadian federal financial regulator announced that even Borrowers having 20% down payment or more will still have to face a stress test for qualifying, During 2017, this method only applied to those applicants with smaller down payments and also those who were either obtaining Mortgage Insurance from Canada Mortgage and Housing Corporation CHMC or from Genworth. Credit Unions are regulated provincially so they do not have to adopt those rules.
Canada Mortgage and Housing Corporation
What’s in force
- Mortgage Stress Tests determines how much house you will be able to buy
- Meant to ensure that Consumers can withstand a rise in interest rates.
- The higher of either the bench mark mortgage rate 4.9% or the current rate plus 2% percentage points.
- The Banks want to make sure that if you find a home, you do not run the risk of not qualifying in the new year.
- Renewing Mortgage - with your current bank you do not have to qualify, only if you are changing financial institutions
- Refinancing - you have to qualify because you are taking on new debt so the stress test applies
Get a Better Mortgage
A variety of the types of Mortgage Financing you will need
- Buying your home whether your First Home or Next Home
- Buying an investment property
- Buying a second home
- Self Employment
- Debt Consolidation
- Private Mortgages
CHIP Reverse Mortgage
Understand more on Reverse Mortgages is the first Step
- You always maintain title ownership of your home
- You have the ability and freedom at any time when and if you move or sell
- Clients can quality up to a 55% of your homes appraised value however an average is 33%
- It is tax free money and allows your retirement savings to last a little longer
- Help to free up cash
Why use a Mortgage Broker
Enjoy qualified personal services
- Brokers primary expertise is locating funding for mortgage financing
- Brokers are not employed by lending institutions and are not limited to services
- Brokers are paid by lender but represent the Buyer
- Brokers work with over 25 lending institutions
- Enjoy better negotiating power
Status Certificates and why do you need one?
A status certificate is the report as per Section 76 of the Ontario Condo Act which outlines the current state of a Condominium Corporation. It contains an assortment of extremely important details on your condominium. A key item noted on the status certificate is any large increases which may come into effect, special assessments and any arrears or liens on any particular suite or the Corporation.
A Status Certificate includes:
- Condominium Declaration
- By-laws, Rules and Regulations
- Copy of the Insurance certificate of the Corporation
- Copy of the Corporation Insurance Certificate
- Most Recent Financial Statements outlining operating budgets, reserve fund and any surplus etc.
- Cover letter with Board of Directors signature confirming contents of Status Certificate
- Notification of Special Assessments as ratified by the Board of Directors
- Notification of any large increases and/or any items of importance
Buyers Status Condition on Agreement of Purchase and Sale
The status certificate discloses information to a potential Buyer about the Condominium. A Buyer purchasing a condominium should include a Status Condition clause where the Sellers will provide the Buyer with a Status Certificate within 10 days. The condition will include an additional 3 banking days for the Buyers Lawyer to review the Status to their satisfaction. If the Status is acceptable to the Lawyer, the Buyer will be instructed to waive the Condition on Status Review based on their Lawyers recommendation. They will sign a waiver to release the condition and their Purchase and Sale Agreement is now firm. In the event that the Buyer's Lawyer is concerned about anything on the Status Certificate and the concern cannot be remedied, the Lawyer will most likely recommend that the Buyer not waive the status condition and release the Agreement of Purchase and Sale. The Buyer will sign a Mutual Release to terminate the Agreement of Purchase and Sale with the Seller and the Listing Brokerage will return the Buyers deposit without interest or deduction. The Buyers deposit would have been held in trust for the Buyer pending the completion of the transaction. In many cases the Status Certificate may only be valid for 30 days as per the Buyers Lawyer's request however traditionally it should be 60 days.
Status Certificate Requisition
Whether the Seller requisitions the Status through an online portal or can also submit a written request by contacting their Property Management office, the cost is approximately $125.00 - $150.00 depending on each Corporation. Not all Corporations have their Status Certificate available online. According to the Condominium Act, a Provincial Legislation, the Condo Corporation has 10 days to satisfy the request. It can either be a hard copy from the Corporations Property Management office or through an online portal such as Conduit, assortment of pdf files with the above information. It will also include a cover letter to identify the legal description of the specific condo unit as well as the current maintenance fees attached to that unit along with the costs being covered in the maintenance fee.
Periodic Information Certificate
In some Corporations, certainly those who have Board of Directors who practice transparency in a stronger fashion do sent out a Periodic Information Certificate (PIC) twice per fiscal year to all Owners. Generally it is within 60 days of the end of the first quarter and 60 days of the end of the third quarter. This PIC includes important information regarding the Board of Directors, the corporation finances, insurance, reserve fund, legal proceedings and other matters such as changes to any By-Laws and/or Rules and Regulations.
Building or Developer preparation of Original Condo Declaration and By-Laws
The Ministry of Government and Consumers Services oversees the Condominium Act. In March 2010, Founder CEO of the Condo Owners Association, Linda Pinizzotto challenged the Act when she created the COA. The first plan of action was to meet with Minister John Garretson, of the McGuinty Government. It was an enormous challenge and before the Province experienced a change in Government from the McGuinty to the Wynn Government, Premier Dalton McGuinty announced the CONDO ACT REVIEW
Human rights Code of each Province
It is common for the Builder or the developer to draw up a set of rules and regulations along with the Builder's law firm to prepare the declaration and by-law. Section 58 (1) of the Act must promote safety, security and welfare of Owners and their property as well as the Assets of the Corporation.
Condominium Investor
Investor Information in a National Post article
Get ready condo flippers, Canada Revenue Agency is hunting you
National Post | Garry Marr | 13/04/20 | Last Updated: 13/04/19 2:23 PM ET
You just sold your con
do, you made a hefty profit and know you have to pay your taxes.
The bill might be more than you think.
If it’s your principle residence, there’s no tax, as long as you have the paperwork to prove it. The Canada Revenue Agency is taking a closer look at the condominium sector in what some in the industry have dubbed the “Condo Project.”
Even if you own up to it being an investment property, you may not be allowed the capital gains tax break and that means a bigger hunk of your profit going to Ottawa.
Let’s say your gain is $100,000 and your tax bracket is 46%. Capital gains are taxed at 50% so you would only owe $23,000 on that profit.
Not so fast! If the CRA says you are in the business of flipping condominiums, get ready to pay based on the gain being counted as income for a tax bill of twice the amount at $46,000. And, it gets worse. You could also face a fine of up to 50% of the tax owed for making a false disclosure.
With the deadline for filing taxes coming up April 30, you might want to think very carefully about how you record that housing sale you made in 2012.
Sam Papadopoulous, senior public affairs advisor-manager with CRA’s Ontario region, acknowledges that the strength of the condo sector has attracted the attention of the taxman.
“We do from time to time target some sectors more closely than others,” he said. “We look at the real estate market in general. Of course, [there is more focus], it’s a hot market.”
People in the industry have a different view.
Some suggest it fits in with the recent budget when Jim Flaherty, the finance minister, announced his government was taking a closer look at loopholes and tax cheats — hoping to shrink its deficit in the process.
One of the issues attracting the attention of the CRA is assignment clauses, where one person agrees to purchase a condo before it is built but ultimately sells his or her right to buy that condo before the building is even registered.
Builders usually collect a fee for that privilege but ultimately when title is registered at the land registry office the original purchaser’s name is nowhere to be found.
While most builders are unlikely to voluntarily supply a list of properties in their building that were assigned, they could be forced to cough it up if they are audited by the CRA.
Those people who have assigned their units to another buyer are going to be hard pressed to prove they planned to use the unit as an investment property rather just flipping — meaning the CRA is highly unlikely to allow them to count money made at the lower capital gains rate.
“If you keep [assigning property] then it is not capital gains, that’s trade and that’s income,” said Mr. Papadopoulous, adding you do it a “couple of times” and it’s income. “Of course, that’s part of [what they are investigating].”
The warning to people flipping property and thinking they can get away without reporting the gain is pretty clear.
“We live in the information technology age,” said Mr. Papadopoulous, who wouldn’t get into how CRA is tracking down the tax evaders. “We are putting our resources to work and following the trail where we can.”
David Chodikoff, a tax lawyer and partner at Miller Thomson, said he’s seen the CRA go after people who have been living in a property and still question it as a principal residence.
CRA starts with a letter to a taxpayer asking them for details about when and why they sold their property and people often fill out the questionnaire without legal advice.
The issue goes all the way back to 1971 when there was no tax at all on capital gains so everybody tried to avoid counting gains as income.
Mr. Chodikoff says the distinction between income and capital is as simple as the difference between a tree and the fruit that it bears.
“The tree is capital and it produces a fruit and the income is the profit that is derived when that fruit is sold,” he says.
If your condo is that tree and your rental income is the fruit and you make a profit from that rental income, that’s taxed as full income. You eventually sell the tree for more money and that’s just a capital gain, taxed at the 50% rate.
If your entire businesses is just trading trees and not producing fruit, that’s business income.
“The Income Tax Act asks what was your intention when you bought that condo,” said Mr. Chodikoff. “These principles are easy to describe but harder to prove in fact.”
The law is like a civil case, a judge doesn’t have to believe you beyond a reasonable doubt, but a judge does have to conclude you are more believable than the CRA.
“We have to bring all kinds of intrinsic evidence,” says Mr. Chodikoff, noting some clients will produce something as simple as a change in address on their driver’s licence to show they were using their condo as a principal residence.
If you never actually moved into the condo, it’s going to be tough to prove that it was principal residence.
You may never have produced income from the profit but that’s not to say you didn’t plan to, so perhaps you could get the capital gains exemption.
“The question can be ‘how did they come to sell the property,’” said Mr. Chodikoff, adding the CRA might look at whether you were advertising the property for sale.
Brian Johnston, chief operating officer of Mattamy Corp., says the CRA has ways to get information on sales.
“They audit real estate companies, look at the name on the contract and look at the final deed and see a difference,” said Mr. Johnston. “They see Bill Smith bought it and Joe Blow is on the deed. They want to know how this happened and follow the paper trail.”
He has some sympathy for consumers confused about the whole process.
“I think the government should make it a little simpler in terms of filing for principle residence exemption,” said Mr. Johnston. “It’s a real gray area of the law. The government has not done a good job for Canadians trying to specifically identify all the rules around [selling homes and paying taxes]. People might have inadvertently made mistakes.”
Condominium developer Bard Lamb, who has been audited several times, said ultimately it’s better to be more conservative when you’re filing — meaning just count the gain as income if you are in doubt.
“If you are prolific buyer or seller of properties, whether it’s condos or not, you have to govern yourself accordingly. If you don’t, you’ll get caught and be fined,” said Mr. Lamb. “I decided many years ago when I started buying condominiums, after talking with my accountant, you can pay [lower tax] or you can fight 50 years with Revenue Canada.” http://business.financialpost.com/2013/04/20/get-ready-to-pay-income-tax-on-your-condo-profit/
Other Links:
New Construction Condo
Buying New Construction Condo
Buyers must understand condominiums before buying! "Condos are a complicated purchase, first you must learn about the new construction world of condos and what is expected from the day of signing to registration day" says Linda Pinizzotto, Owner of Linda Pinizzotto Real Estate Group a Branch of RE/MAX Realty Enterprises Inc and and Founder | President of COA the Condo Owners Association. It's time to invest in Real Estate but make sure you understand condominiums and work with a specialist.
Condo Radio.com
Contact us for more details
Buying New vs Resale Condominiums
Buying a New Condominium
If you are purchasing a new construction condominium; take the time to review a number of concerns.
If you are enlisting the services of a Registered Real Estate Representative, you must enter into these development sites with your Sales Representative right from the start otherwise they cannot assist you.
New Construction Condominiums are very confusing compared to the Resale Market. The Sales Representative at the New Condominium Sales Office is hired by and represents the Builder. They also may not be a registered Real Estate Salesperson. It is very important to have your own representative.
We highly recommended that all New Condominium Buyers enlist the services of a Residential Resale Real Estate Sales Representative who has a vast amount of knowledge relating to New Construction Condominiums, Condo Documents, By-Laws and Rules and Regulations of a Condominium prior to entering into any Model Site. A licensed professional should have all of the knowledge listed below.
Considerations on New Construction:
- Review reputation of the Builder
- Determine the launch date of the site - if there has been any price adjustments
- Ask if there is any additional Phases of Sister Buildings to this Phase of construction
- Ask if the 2nd Phase is a different Condominium Corporation
- Ask if there is any entity of Share Facilities relating to the Building ie. Recreation Centre
- Ask if the suites are Residential, Live-work or Commercial Usage /or both
- Review all floor plans for wasted hallway space in relation to square footage of unit
- Layout and Design, both living space, balcony or terrace
- Review the location of the Building and the direction the Unit is facing
- Note any vacant land or parking lots - Check with the City for Plan of the Area
- Review the list of inclusions and note those with additional expenses
- Calculate the Price per square foot of the Unit as per builder plans
- Ask Sales Representative to explain square foot calculation inside wall
- Confirm the price per square foot to determine the Maintenance Fees
- Review the proximity of the elevators and garbage chute
- Check if the building has energy features and tri-sector garbage chutes
- Check if the building has sub metering for heat and/or hydro
- Ask about finishings within the unit - ceiling height, floor coverings,
- Obtain a list of Inclusions (ie appliances)
- Check light fixtures outlets on the plans (include those that are capped in purchase)
- Ask about the amounts of keys, fobs and mail box keys provided with purchase
- Ask if there are guest suites and if the superintendent suite is owned by the Corporation
- Is there a rooftop patio and/or swimming pool - sundeck or anyting of concern
- Note swimming pools on rooftop could be very expensive to fix - long term
You will be provided an Agreement of Purchase and Sale
- Note the payment schedule of your installments
- Note the projected occupancy date and if there are any restrictions
- Have the Sales Representative explain the difference between Occupancy and Registration
- Ask if there are any conditions or preventions of Assignments
- Have the Sales Representative explain details on Assignments and/or Rental prior to Registration
- Ask about option to purchase parking and/or a locker
- Learn about the Tarion Warranty Corporation
- Understand Ontario New Home Warranties Plan Act
- Cancellation - 10 days is known as a "cooling off period"
Have your Solicitor Review during 10 Day cooling off period
- You will be provided with the Condo Documents of the Building (approx 150-200 pages)
- You may also receive a package of By-Laws and/or Rules and Regulations
- Have your Lawyer Review these Documents
- Find out if there is any restrictions in the Documents relating to ie. Pets, Barbecues
- Check Short Term Rentals and if they are time sensitive or unlimited
- Check if the Corporation includes any affordable Housing units
- Check if there are any leasing equipment ie. boilers, communication room etc.
- Check if the full Parking Garage is Owned by the Corporation
- Your rights when buying a condo
The New Home Warranty Act
The New Home Warranty Act provides Consumer Protection is also available in other Provinces in Canada. New Condo Buyers must familiarize themselves with the New Home Warranty Plans Act when they are purchasing new construction homes.
All new build condominiums must be registered with Tarion Warranty Corporation, a private corporation established in 1976 to protect the rights of new home buyers and regulate new home builders. Generally the cost of the registration is charged back to the Buyer on closing of the purchase.
Tarion administers the Ontario New Home Warranties Plan Act, outlining warranty protection that all new home purchasers are entitled to in Ontario. Remember the Condominium Building is also covered under Tarion Warranty Corporation and the Ontario New Home Warranties Plan Act, RSO 1990, c0.31 The links below may assist you.
ABOUT CONDO ACT
COA REPORTS ON REVIEW
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