Siobhan Harlow

At Harlow Financial, real estate is a top investing tool. Need a down payment for your principal residence, additional properties? Use your TFSA (tax free savings account) option as part of your employee share purchase plans. The more aggressive growth you gain without paying tax gives you more useable cash for real estate. Need investment ideas and or mortgage insurance. I am Siobhan Harlow of Harlow Financial and I am here to help. Just ask.

AS an independent financial Advisor ... my clients are asking what to do with their current investment decisions.

I've had a few clients inquire about purchasing rental properties and how income taxes are calculated with investment rental properties. As with the current economy this could be a great investment.

It's actually a pretty basic calculation, with your total NET rental income added to your regular income throughout the year. The basic formula works out like this:

Total Rental Income - Expenses = Net Rental Income

Total Rental Income is self explanatory, what is considered an expense? Listed below are the expenses that are tax deductible:

• Mortgage Interest (from your annual statement)
• Property Taxes
• Insurance
• Maintenance/upgrades
• Property Management
• Utility bills (if you include them in the rent)
• Office supplies
• Internet connection, telephone, cell phone (portion used for business)

For example, my rental property brought in around $10,000 in rent last year, with expenses listed above totaling around $8000. In my case, $2000 was added to taxable income for the year. At the 40% tax bracket, I would pay $800 in taxes for the year.

What if I had a loss? No problem, this amount is subtracted from your other sources of income that are taxable for the year. So say that I had a $2000 loss instead of a gain. Providing that I paid in taxes from other income sources throughout the year, I would get back an extra $800 during tax refund season.

What if you live in a 2 unit home and you live in one of them? In this case, you can still deduct mortgage interest and property taxes, but only a percentage of it. The percentage depends on how much space you have rented relative to the size of the building.

There you have it, a basic explanation of how rental property income tax is calculated. Please note that I'm not a tax professional so take the information above as general info for your own research. I recommend that you contact a tax professional before calculating your deductions.

Siobhan Harlow, Harlow Financial

RSP contribution vs. Mortgage lump sum

A question that I'm asked quite a lot is whether it is preferable to contribute to an RSP, or pay down the mortgage.

The general rule of thumb is that as the mortgage interest increases, or as the investment time horizon decreases, it becomes more attractive to prepay the mortgage.

There are normally 3 options that people see as alternatives:

Paying off your mortgage first, and then contribute to an RSP - as under typical circumstances the interest that you are paying on your mortgage is with ‘after-tax' dollars;

Contributing to your RSP and using the tax savings to pay a lump sum on your mortgage; and

Contributing to your RSP and use the tax savings to make a further contribute to your RSP.

Everyone's circumstance is different, so it is best to speak to your financial advisor about the choice that is best for you and then whichever you and your advisor select, we at Harlow Financial are here to help you implement your strategy.

Thank you for spending your time with me. I'm Siobhan Harlow of Harlow Financial and I'm here to help.