Canada: Overview

RENTAL YIELDS

Yields in Montreal and Toronto moderate to good

Condominiums in Toronto have yields of around 6.4%. Larger units have higher yields, reaching up to 6.74%. These units are expensive, selling for an average of US$5,178 per sq. m.

Montreal apartments are less expensive at around US$4,152 per sq. m. This makes yields slightly higher at 6.8% on the average. Yields are higher for smaller apartments. 50-sq. m. apartments have yields of around 7.37%.

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TAXES AND COSTS

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%
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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.

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BUYING GUIDE

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.

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LANDLORD AND TENANT

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.

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ECONOMIC GROWTH

Continued economic and wage growth in Canada

Canada is the second largest country in terms of land area (9.9 million sq. km.) in the world after Russia. However, its population of 32.3 million is only about a fifth of Russia’s making Canada one of the least dense countries in the world. Occupying about half of the North American continent, Canada has a strong and dynamic economy and a GDP per capita of US$38,382.

A slightly lower GDP growth rate was observed in 2006 with 2.7% compared to 2.9% in 2005. The Canadian Chamber of Commerce reveals that the slowdown was caused by decreased residential investments and more moderate government spending. The IMF predicts the GDP growth rate to go further down to 2.4% in 2007. The economic slowdown in the US, Canada’s main trading partner, is cited as a fundamental factor in Canada’s sluggish performance. The economy is expected to recover in 2008 with a 2.9% growth rate.

The western provinces outperformed central and eastern provinces in 2006. Alberta recorded the highest GDP growth rate with 6.8%, far exceeding the national average of 2.7%. Rising oil prices fueled investments in the province. British Columbia ranks second with 3.8% growth rate, owing the escalation to increased commodity prices, tight labour market and booming construction markets.

Canada’s labour market remains strong. Real wages rose 3.2% in 2006. They are projected to rise by 3.2% in 2007 and by 3.8% in 2008. The unemployment rate plunged to a historic low of 6.3% in 2006. No sizeable decline in unemployment is expected in 2007 and 2008.

Canada’s inflation rate was 2% in 2006. The IMF is optimistic that it will fall to 1.7% this year, while OECD expects 1.5% inflation. These forecasts are below the 2% target of the central bank.

The average five-year mortgage was 6.66% in 2006. The CMHC forecasts the mortgage rate to range from 6.25%-7.25% in 2007 and 2008.