A research produced by
Foreign investors may invest in property in Canada by direct ownership of the property from offshore or via resident corporations, partnerships, or trusts.
The purchase price paid for the acquisition of a property will form the tax cost of the acquired land and building. The portion of the purchase price that is allocated to the building can be depreciated for income tax purposes (CCA discussed below). For this purpose, the allocation of the purchase price should be based on the fair market value of each of the land and building. There is no prescribed allocation ratio.
Any incidental expenses related to the acquisition of a property are capitalized to the cost of the land and building. The capitalisation of the incidental expenses to land and building should be based on the direct purpose for which the expenses were incurred. For example, if an expenditure incurred directly relates to the building, the expense should be capitalized to the cost of the building. However, if the expenditures relate to both land and building, it may be appropriate to use the fair market value allocation ratios. Types of incidental expenses include land transfer tax and registration fees, brokerage fees, legal fees and accounting fees.
Costs incurred to set up entities (i.e. to form a partnership or corporation) are not immediately deductible. Where the entity carries on a business, 75% of these costs may be amortized for income tax purposes at the rate of 7% per annum using a declining balance method.
Costs to obtain financing are deductible, rateably, over a 5 year period, but adjusted in the case of a taxation year shorter than 12 months. If the financing is repaid in full during the amortisation period, the unamortised financing costs become deductible immediately.
Source : PWC
