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Is The Occupancy Fee Tax-Deductible in Canada?

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In Ontario, new condominiums go through a so-called period of temporary employment (or simply “occupation”) before final closure. This is the time period when you have the right to occupy the unit, but technically you do not yet own it.

This is unique to apartments and does not happen in owned properties that go until the final closure. You will have a job on the closing day, where you will receive the keys to the unit. Then, sometime later, you will have your last closing day when the title will actually be transferred to you.

What is the occupancy fee, and why does one pay them?

Occupancy costs are costs related to the occupancy of an enclosed space; rents, property taxes, property taxes, property and content insurance, depreciation, and amortization Fees are generally higher for new entrants due to escalating property prices.

Let’s try to clear up possible misunderstandings about occupancy taxes. Many investors are unnecessarily worried about employment taxes. Some people call occupancy taxes “phantom rents,” which sounds scary, but there’s nothing to fear. Occupancy taxes are not something a developer can simply “invent” and charge you for.

When you pay occupancy taxes, you are not “wasting money” or paying rent for nothing. You pay for the exclusive right to use and occupy the property. The method of calculating occupancy tax is a simple formula that is the same for every condominium in Ontario.

If you own a condominium, you pay 4 things each month:

  1. condominium fees
  2. property taxes
  3. Mortgage payments, which consist of 2 parts: principle and interest.

If you’re in a condominium job, it’s exactly the same, except that you don’t pay the mortgage principal every month. So your monthly occupancy fee is usually 20-30% lower than your monthly expenses when the final relocation occurs, and your mortgage takes effect.

You cannot own something that does not exist, and in the field of real estate in Ontario, real estate does not exist until it is registered in the land registry system (until it is “registered”). This process takes some time in a new condominium, as there are often hundreds of units to register at once.

Once your unit is ready and habitable, you will take ownership, but not ownership. You have to pay the developers for the right to live in the unit (no free lunch). The amount of occupancy tax is approximately equivalent to the interest on the residual amount of the purchase price.

For example, an apartment of CAD 100,000 with a 25% discount means that you have to pay monthly occupancy charges that equal to about CAD 75,000 in interest payments.

Are occupancy fees really a tax-deductible expense in Canada?

One has to talk to their tax accountant about specific tax advice, however in most cases, yes, occupancy costs are a fully tax-deductible expense compared to rental income if you are an investor renting an apartment.

They can be taken as deductions if they affect what you would otherwise earn on rental income. If your tenant pays the apartment fees, you cannot deduct them during the given time period. If you earn rental returns from a condominium unit, you can deduct expenses that you would normally deduct from rental income. You can also deduct condominium fees, which represent your share of maintenance, repairs, upkeep, and other ongoing expenses of the common property. Other fees may include landscaping costs, lease cancellation, and costs associated with vacant lands.

While your individual tax accountant will be able to provide you the exact amount of the fee that may qualify for being tax-deductible in Canada, largely, all of these costs are tax-deductible.

What’s more to this?

Can one really advertise their property/ condo unit for rent during occupancy?

Yes, you can. There are many online platforms where such a unit may be advertised. The most powerful place to advertise an apartment in Toronto for rent still remains the MLS system, which is accessible only to real estate agents. That’s why most investors hire an agent to state their terms of the lease – that is, to obtain a premium MLS exposure. MLS goes to Realtor.ca, and the data is also scrapped and sent to thousands of other sites. The list of other popular sites is constantly changing, but at the time of this article, Zumper / Padmapper is probably the best place for advertisements.

Conclusion

You should, and you can always get insurance for your condominium investment. You can rent your condominium out by yourself or hire a realtor who can do this for you. Just take the option which is more lucrative.

However, don’t forget, most occupancy fees are tax-deductible.

Salman Rundhawa
Salman Rundhawa
Salman Rundhawa is the founder of Filing Taxes. Salman provides valuable tax planning, accounting, and income tax preparation services in Toronto, Mississauga, Oakville, and Hamilton.

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