Property taxes are inevitable carrying costs that come with homeownership, regardless of whether you’re buying your first home or adding to your real estate portfolio as an investor. Here is a guide to real estate taxes in Montreal, which will help you budget for your investment and stay on top of your accounting.
Expected taxes for buyers and homeowners:
School Taxes: School taxes contribute to the maintenance of educational institutions in your neighbourhood, and are paid in two instalments per year to the Comité de Gestion de la Taxe Scolaire de l’Île de Montréal (CGTSIM).
The 2016-2017 school tax rate is $0.17765 per $100 of assessed value. Last year’s rate was $0.18839.
Municipal Taxes: Municipal taxes are also paid twice a year, directly to the City of Montreal (Ville de Montréal). Property taxes will vary based on the property’s assessed value, as well as on the neighbourhood in which the property is located. In general, you can estimate a municipal tax payment of 1% of your property value.
Land Transfer Taxes: Land transfer taxes are only paid once, upon purchase of the property. They are calculated based on the purchase price of the property; the methodology varies from province to province. In Montreal, land transfer tax is based on purchase price, or the municipal evaluation as determined by the Montreal assessment roll (whichever figure is higher), increased by a comparative factor. You can expect a land transfer tax amount of around 1% of the property’s value.
Income Taxes: Income tax is paid by real estate investors who earn passive income by renting out their properties. Passive income is added to your other streams of income, and taxed by Revenue Quebec.
Capital Gains Tax: This is paid by real estate investors who have made a profit on the appreciation of their investment property. Properties that serve as the primary residence of the homeowner will be subject to capital gains exemption and therefore will not be taxed as income.
Expected taxes for investors:
Income taxes: If you rent a property out at a profit (rent – expenses) of $100/month: 100 x 12 months = $1200 of profit / year will be added to your income, which will be taxed according to your tax bracket.
Capital gains tax: In Canada, only 50% of capital gain is taxable. Hence, in the case that your property appreciates by $100,000, only 50% of $100,000 is taxable = $50,000. If this property is an investment property, $50,000 will be added on top of your income and will be subject to the marginal tax rate for your particular tax bracket. So, if you make more than $103,915 a year and live in Quebec, you will be subject to an income tax of 25.75%. This means you will pay a capital gains tax of $50,000 x 25.75% = $12,875 on the appreciation of your property.