Tax Advantages on Buying Your Own Home in Canada - Example

Tax advantages on buying your own home in Canada Introduction The research paper puts intoperspective the issue of tax advantage of owning a home in Canada. The paper also illuminates Professor Tristani’s view that owning a home may not be advantageous after all. Home ownership is a critical subject that needs to be handled with care; in the recent past, most Canadians have never had the coveted opportunity of owning a home. Nevertheless, with the tax advantages in place more Canadians are having the opportunity to own a home. Every time one requires to purchase a house such a person must consider of the tax benefits involved in such an investment. The government has made frantic efforts to ensure that citizens are empowered to own homes. Therefore, households which purchase houses usually make a great deal in savings. However, several restrictions and procedures control the tax benefits. It is therefore, critical that deliberate efforts are taken by potential homeowners to consult with several tax professionals such as accountants to help them to fully understand the benefits of owning a home. The subsequent paragraph illuminates the tax benefits of owning a home in Canada as well as Professor Tristani’s view that owning a home may not be advantageous after all. Tax Benefits of Owning a home Deductions on mortgage interest are one tax benefit that comes with owning a house in Canada. The Government in a bid to ensure that more households own homes has partnered with several commercial financial institutions such as banks with a view of effecting deductions on mortgage interest when the applicants meet some standards set (Canada, 2006). In fact, it is very possible for individuals to be offered tax deductions for the interest payable on mortgage taken for purchase, of home or for improvement of home. It is worth noting that although there are several deductions on mortgage interest the procedures involved are quite elaborate. Therefore, expert guidance is required so that a potential homebuyer does not miss the benefits that come with it (Andersen, 2009). Access Access to mortgage is one critical achievement that the government can take credit for removal of the many restrictions that had barred several people from owning homes. For example, currently Canadians are not required to offer collateral on mortgagees, and this means that even people with average income who do not have assets have the opportunity of owning a home. Moreover, the many bureaucracies that characterized application to obtain a mortgage have been reduced considerably. What is more, even the rate of interest on mortgage is at all-time low at 4%. The other tax benefit of owning a home can be realized from the deductions that are pegged to home improvement and repairs. Improvement and repairs to home are crucial in the sense that they result in increasing the value of the house, make it to be used for a different purpose, or increasing its value. However, homeowner must be alive to the fact that ordinary cost incurred with maintaining the home do not qualify for deductions (Higgins, 2004). It is currently possible for people to secure loans for repairs and improvement of the value of the house. This possibility has gone a long way to ensuring that majority of Canadians lengthen the useful period of their homes. When the individual applying for the mortgage follows the right procedures and meets the requirement for reduction, the individual will be offered a deduction on interest for a mortgage taken to facilitate repairs and maintenance of the house. Deducting of points and closing of costs is yet another tax benefit that is inherent in home ownership. Every other time when one secures a mortgage, such a mortgage is charged costs referred to as lender points. The faster the one pays up the mortgage and accruing interest the more points he is awarded. This means that depending on the points one has he can qualify for deductions. This possibility is quite attractive to potential homeowners since it boosts their confidence to take up loans. Every time one takes a mortgage, there are resulted costs referred to as closing cost. Such costs range from processing fee, title fees, and lender charges among other costs. If the potential homeowner can prove that, he actually did incur such cost measures will be undertaken to ensure that deductibility of such fees is guaranteed. Despite such a feasible progamme being in existence not many Canadians are aware of such a progamme and this begs the need for aggressive awareness campaigns. Such a campaign will ensure that a majority of the Canadians take up mortgage to secure homes. The Internet has proven effective lately in advertisement. In fact, according to Hirschey, (), (2007),The web should not be regarded as a substitute for advertising in traditional media,” instead, the Internet should be taken as a primary advertising method due to its wide coverage, cost effectiveness, and efficiency. Use of social media such as Face Book and Twitter and company website can be of great importance to online advertising. More still, the advent of FM radio stations has brought in jest among listeners. Marketing of the services should employ “multi-vehicle, a multi-stage” framework “to achieve maximum impact and increase message reach and impact." As shown above, social media, radio, and TV ads will be used to raise product awareness. However, detailed product specifications will be published on dailies and other forms of print. The fact that there exists a deduction on capital gains from selling a home has encouraged most Canadians to come up strongly and sell their homes. This has offered several people who did not have homes the excellent opportunity to own homes. In the past, selling a home was not a pleasant task (Jehle and Reny, 2001). Whenever a homeowner decides to sell his home or property, they have to contend with tax implication, which stood at a rate of 16%. This meant that the capital gain that homeowner received from the sale of the house was subject to tax by the government. This fact discouraged many potential home sellers from selling their homes. Therefore, making it harder for people to secure homes. Over the years, Canadians have been grappling with issues of homeownership. To say the least, majority of Canadians did not use to own homes since there were no precise tax benefits that accrued from homeownership. According to Canada Mortgage and Housing Corporation (2002), the cost of renting homes did not help the situation either since renting good apartments is very costly and out of rich for majority of Canadians. This situation made majority of Canadians to resort to living in Makeshift houses, which are uncomfortable and risky. The risk exists in the sense that the makeshift houses are made out of timber yet timber is highly susceptible to fire. Professor Tristani’s view of home ownership Professor Tristiani has a very interesting opinion about homeownership. According to him in the end the person, renting the house will have paid less money as compared to the one who uses mortgage to buy off a house. He uses a practical example to justify his view. According to him, purchasing a house by paying a down payment of 25% plus the installment is far much more costly than renting the same house over a period of 25 years. He asserts that the current interest rate on mortgage of 4% is very high and many households cannot afford to pay finance such kind of a mortgage. Take a case of a house that costs 1500 to rent, the tenant will have to part with a total of $541134 over a period of 25 years. While if such a house was to be bought the buyer will have to incur a cost of a whopping $837,500. Based on the figures above, Professor Tristani is of the view that any rational individual who pays attention to costs would settle for the renting option. If you limit the argument to a span of 25 years, the answer is apparent, it cost less to rent a house as compared to owning one (Canada, 2006). In fact, the difference is so big; renting a house is cheaper by almost $320, 000. However, Professor Tristani’s view is limited to the class environment and hence it is not practical in the real world since owning a home is the dream of every Canadian. Despite the huge amount of money, that one has to part with the consequence is that one will own t a home. On the hand, the person paying the rent will continue to pay rent forever hence in the long run the tenant will have paid more (Andersen, 2009). Owning a house has several benefits that are not inherent in renting a house. If one rents a house, he is able to improve the value and repair the house to make the house more comfortable to stay in. However, this is not the case when one lives in a rented house. When one live in a rented house, he is rarely given the permission to make any changes to the house. Conclusion Professor Tristani’s view cannot be wished away since it contains a critical cost analysis. His view should be a wakeup call to the government to put in place further measures that will ensure ownership of home is even cheaper. For instance, the rate of interest on mortgage of 4% is still high and should be reduced. The housing department and the financial institution deserves to get the credit for the tremendous job they have done to make the dream of home ownership a reality to the majority of Canadians.. References Andersen, E. (2009). Goal Directed Project Management: Effective Techniques and Strategies. New York: Kogan Page Publishers. Canada (2006). Consumer protection in the financial services sector, the unfinished agenda: Report. Ottawa, Ont: Senate Committees Directorate. Canada Mortgage and Housing Corporation, & Canada (2002). Housing in Canada. Ottawa, Ont: Published by authority of the Secretary of State for External Affairs, Government of Canada. Higgins, R.(2004). Analysis for Financial Management. New York: McGraw-Hill Irwin. Hirschey, H. (2008). Fundamentals of Managerial Economics. Boston, MA.: Cengage Learning. Jehle, G., and Reny, P. (2001). Advanced Microeconomic Theory. New Jersey: Prentice Hall Inc. Mankiw, G. (2011). Principles of Economics. New York: Cengage Learning. Read More