Being accepted to the University of Victoria, Royal Roads University or Camosun College is just one step toward studying in Victoria. As September approaches, out-of-town college and university students are usually out of luck if they haven’t already found a place to rent in Victoria by the BC Day long weekend.
With the demand for on-campus student housing outstripping supply and Victoria’s vacancy rate hovering around 1%, accommodations for students moving to the area can seem impossible to come by. That’s why, in some cases, parents may consider purchasing a condo for their son or daughter to live in while studying away from home.
Such a purchase involves investigating different neighbourhoods, bus routes, calculating strata fees, property taxes and most likely mortgage payments. Beyond that, what buyers may not initially consider is the tax implications. If it’s an investment property for the parents, they’ll be expected to claim rental income at fair market value. They’ll also have to pay capital gains when they sell it. To maximize tax deductions, it’s better to take out a mortgage on the rental property versus remortgaging their primary residence, since they can write off the mortgage interest on the investment property. Sharlane Bailey, owner of Canwest Accounting, strongly recommends those considering owning investment properties speak with an accountant first, so they can weigh their options carefully.
Another way to go about this is to put the condo in the student’s name as their principal residence, and there would not be capital gains to pay when they sell it. However, assuming there’s a mortgage on the home, the student may not qualify to carry the mortgage. This is an important conversation to have with your financial lending institution.
One problem that can arise when parents purchase a condo for their adult children to live in and later decide to gift it to them is that it’ll be subject to capital gains taxation. So, if the condo is appraised at $100,000 more than when purchased, $50,000 is a capital gain and needs to be claimed on their income tax return.
“If parents are buying the condo thinking you’ll probably end up giving it to your son or daughter, they may want to look at the tax implications beforehand,” Bailey said.
Check out our other Canwest Accounting back-to-school articles:
Teaching Students to Live on a Budget
The suggestions and advice provided by Canwest Accounting should not be relied upon in place of professional advice. You are responsible for checking the accuracy of relevant facts and opinions provided.