Canada: Overview

RENTAL YIELDS

Last Updated: Nov 26, 2008

Toronto and Montreal yields hold steady

We find that condominiums in Toronto have yields of around 6.3%, which is just slightly lower than 2007 Global Property Guide yields research results. Larger units still tend to have higher yields, reaching up to 6.48%.

Montreal apartments are less expensive to buy at around US$383,200 for a 120 square metre (sq. m.) property, versus around US$478,000 in Toronto. Gross rental yields are slightly higher in Montreal (by 1.08%), so that an average apartment yields around 7.4%. Yields are higher for smaller apartments, unsurprisingly - 55 sq. m. apartments have average yields of around 8.59%, according to Global Property Guide research.

Read Rental Yields  »

TAXES AND COSTS

Last Updated: Dec 03, 2008

Taxes are generally high

Effective Tax Rate on Rental Income
Monthly Income	US$1,500	US$6,000	US$12,000
Tax Rate	14.9%	11.3%	8.1%
Click here to see a worked example
Source:			Disclaimer

Rental Income: Gross rental income is subject to a fixed 25% tax, withheld by the tenant. However, non-residents can elect to pay under the section 216 of the Income Tax Act, wherein they will be liable to pay tax on their net income at the progressive federal tax rates. Non-residents electing under section 216 are also liable to pay 48% surtax.

Capital Gains: Only 50% of the capital gains are liable to tax. Capital gains are computed by deducting the costs incurred in selling and purchasing the property, capital expenditures, and such costs as additions and improvements in the property.

Inheritance: There is no inheritance or estate tax in Canada.

Residents: Canadian residents are subject to Canadian income tax on their worldwide income. Income is taxed at the federal level and at the provincial level.

Read Taxes and Costs  »

BUYING GUIDE

Last Updated: Jul 02, 2007

Transaction costs are usually low

Total costs and taxes for buying properties amount to around 4.7% to 11% of the value of the property. Transfer Tax differs in each province, ranging from 0.5% to 2%. Typically, real estate agent's commission is 7% on the first CA$100,000 of the sale price and 3% on the remainder, plus 6% Goods and Services Tax (GST). Total roundtrip costs are higher for new and renovated houses because of the additional 6% GST.

Read Buying Guide  »

LANDLORD AND TENANT

Last Updated: Feb 06, 2008

Tenant protection laws are strong

Canadian tenancy institutions are pro-tenant.

Rent: The initial rent can be freely negotiated in all provinces, except in some provinces like Quebec, where initially negotiated rents can be appealed if they are higher than a rent charged by the same landlord for the same apartment within the previous 12 months.

Tenant Security: The contract cannot be terminated by the landlord within the duration of the fixed-term lease (usually one year), except for cause (e.g., tenant's non-payment of rent, tenant conducting illegal activity, and so on).

Subleasing needs a written permission from the landlord but this permission may not be unreasonably withheld. However, the landlord can insist on screening the prospective new tenants and may reject them on the basis of financial risk.

Read Landlord and Tenant  »

ECONOMIC GROWTH

Last Updated: Dec 10, 2008

Recession ahead

Canada is the world’s second largest country in terms of land area (9.9 million sq. km.) after Russia. However, its population of 32.3 million is only about a fifth of Russia’s, making Canada one of the least densely populated countries in the world. Canada has a relatively strong economy with GDP per capita of around US$38,000 in 2007.

From 1992 to 2007, Canada’s GDP grew by an average of 3% per year. In 2008, GDP is expected to increase by a mere 0.5% due to decline in the manufacturing, automotive and financial sectors, sharp drop in exports and reduced residential investments.

Canada is on the edge of recession.
     • In Q4 2008, Canada’s GDP is expected to fall 1.6%
     • In Q1 2009, GDP is expected to contract by 1.4%
     • In Q2 2009, GDP could fall by another 0.3%

Economic recovery is projected in the second half of 2009.

Unemployment was at a historically low level of 6% in 2007, significantly lower than the peak rate of 11.4% in 1993. Unemployment rose to 6.3% in November 2008. In 2009, unemployment is expected to rise further, to 6.9%.

To tame inflationary pressures, the Bank of Canada (BoC) raised key interest rates to 4.5% in July 2007, from 4.25% (unchanged since May 2006). However, the global financial crisis pushed the BoC to successively cut key interest rates.

In 2008, the Bank of Canada (BoC) reduced key rates five times, to 2.25% in November, following interest rate cuts in the US.

However these key interest rate reductions have had only muted effects, because Canadians mostly have fixed-interest rate mortgages. Conventional mortgage interest rates barely fell:

     • The 5-year conventional mortgage rate dropped 7.2% in November 2008, from         7.39% a year earlier.
     • Interest rates on 3-year conventional mortgages moved to 7.05%, from 7.35%         a year ago.