By: Ralph W. Burgess
Senior Tax Strategist
Peer Financial, Ltd.
Every time a Canadian vacationer pays for his resort hotel or condominium, he is spending after tax dollars. For most Albertans, that means earning about $3,300 to be able to spend $2,000 for that hotel or condo on the beach, at the golf course, or on the slopes.
For the typical tax-burdened Canadian, it has always been a dream to be able to beat the tax man - legally - somewhere, some time. Finding a tax-advantaged way to pay for some vacation costs is the Holy Grail of financial planning. Today knowledgeable Albertans are finding that they can just about do that - thanks to a new investment program offered by Peer Financial.
Peer Financial, in co-operation with SRC Developments of Canmore, AB is selling its customized version of fractional ownership to Canadians who are now, for the first time, able to free up money from their RRSP's (and various Locked-in Plans) to help finance another investor's purchase. Business owners are using the program to provide reduced cost vacation benefits for themselves and for key employees, as well as for promotional purposes.
|Ralph W. Burgess|
Equity and tax advantages - a powerful combination
The investment combines ownership in a red-hot Canmore real estate market with access to first quality resorts around the world. It also features clever financing plus a resale strategy timed to coincide with the anticipated "built-out date" of Canmore.
Most investors know that Canadian taxpayers cannot finance their own resort property with their RRSP's, yet it is perfectly acceptable to invest in mortgages with self-directed RRSP's. To satisfy CRA requirements, Peer has ensured that investors purchase a fractional interest in one condo at the Canmore resort. Subsequently, they may direct their RRSP to invest in an arm's length mortgage in a different, but identical condo.
These are two-bedroom, two-bath furnished condos in the heart of Canmore - with full kitchens, Jacuzzis, fireplaces, heated parkade, and amenities.
Investors pay a down payment and closing costs, and take out an interest-only 10-year mortgage. Although they are paying interest, their RRSP is receiving interest tax-free at the same time.
At the end of the anticipated 10-year holding period, SRC Developments will provide a co-ordinated resale program, and investors will receive shares of the sales proceeds based on their fractional ownership.
The first monies go to repay the mortgage principal to the RRSP's. Any capital gains realized will flow to the owners individually, not to the RRSP's, and be taxed at the favourable capital gains rate.
So, where do the vacations come in?
Obviously owners can use their condos in Canmore on a rotating basis that matches their fractional interest.
However, the program also provides access to a network of luxury resort condo properties called Interval International. Among the companies affiliated with this network are Disney, Marriot, Hyatt, Intrawest, Sheraton, and Four Seasons.
The Owner Services staff handles all these arrangements and enjoys the unique position of being able to offer the highly sought after Canmore destination to the hundreds of thousands of Interval International members who actively seek exchanges.
Vern Mazur, the Director of Owner Services for SRC, reports, "When we started our company over twelve years ago, we recognized that fractional owners wanted to go to other fine resorts, but they didn't want to be bothered with learning how to make these exchanges efficiently."
"So we do it for them. We have truly mastered the system and our owners enjoy great resort vacations."
Tax advantages you wouldn't expect
This form of ownership means that investors are not renters and therefore are not subject to room taxes or customary local taxes, either in Canmore or through Interval International.
Because the condos already exist, the real estate purchase is not subject to GST - a real cash savings.
But the biggest advantage is that this program frees up "trapped" retirement funds in a way that gives Canadians an immediate lifestyle benefit combined with a legitimate upside based on the real estate appreciation potential of Canmore.
Who watches over the program?
Both a mortgage trustee and an RRSP administrator protect the interests of all investors. Deeds are kept in trust and funds are channeled through these outside entities so that all investors have a comfort level that the RRSP's will be paid and the real estate interests secure.
The on-site management company oversees the property in Canmore, and costs are shared by all investors.
Fractional ownership of resort properties is a very popular way for families to intelligently target their spending on vacation lodging. Because they already have most of the money they will need for this investment in their retirement plans, they need not tie up significant chunks of their net worth.
Considering all the tax benefits inherent in this program, plus the appreciation potential in Canmore, Peer's RRSP-based program could well be the perfect marriage of sound financial planning with one of the great joys of life - family vacations.
Peer Financial has scheduled regular seminars on this RRSP eligible investment; for further information, contact Ronda-Lee at 403.259.5035.