Real estate taxes are pretty much the same as property taxes – one can be treated as the sub-head of the other for the sake of understanding. The key difference between real estate taxes and property taxes is that real estate taxes only apply to the land of houses; however, property taxes are much more expansive, covering all sorts of properties, for example, vehicles, livestock, or even farmlands.
“Property” is defined in subsection 248 (1) as property of any kind, real or personal, immovable or movable, tangible or intangible, tangible or intangible. For added security, “ownership” includes, but is not limited to, laws of any kind and interest.
A thorough understanding over here needs to be of the fact that real estate taxes are applied on homeowners while property taxes are on everything classified as property but owned by a company or a corporation as well as independent homeowners. (Exceptions apply, keep reading)
While property tax accounting would be necessary, real estate bookkeeping is not just necessary but would become significant and does house multiple benefits, including the individual’s ability to predict how finances are coming along as well as prospects for future investments (if they are planning) and payments.
The transactions that are part of the accounting for real estate investors include:
- Rental invoices sent by tenants
- Confirmation of the monthly fee
- Charging of late fees to tenants for unpaid rent
- Recognition of the tenant’s deposit in the balance sheet
- Payment of supplier invoices
- Make a monthly mortgage payment
- Distribution of money on interest and the principal balance of the loan
- Payment of property tax
- Homeowners Association (HOA) Payments.
- Reconciliation of monthly budgets
- Correct classification of payments as deductible or capitalized costs
- Correct monitoring of depreciation accruals in the real estate balance sheet
- Accurate equity reporting
The local government body hires a tax assessor to determine and calculate a fair value price of the owned property. Properties owned in developed areas carry heavier and larger sums of taxes, while properties in lesser developed areas carry a significantly smaller tax charge.
Most firms hire property tax accountants for businesses that could help reduce the rates of taxable incomes to avoid over-taxation or be able to leverage clauses that would help them save on taxes they may otherwise not know about.
Common forms of real estate ownership are as follow:
- Co-ownerships
- Joint ventures
- Partnerships
- Corporations
- Trusts
- REITs
All of these should necessarily mean that these properties are owned by businesses or at least for business purposes.
Trusts are generally subject to an Alternative Minimum Tax (“AMT”), which is a federal and provincial tax applicable to individuals (including trusts other than mutual funds) that occurs when the normal tax liability is less the minimum tax that would be payable under the calculated income to be adjusted. In the context of a typical investment property, AMT can arise when a trust deducts interest and certain elements of tax benefits to protect rental income or uses non-capital loss transfers resulting from such deductions.
It can account for how much taxes are being paid if the individual in question is a landlord, landowner, or accountant in a firm, and how much taxes are being received if you are a governing body to keep track of steady taxes being paid. Real estate Bookkeeping, like other tax accounting procedures, can be recorded digitally for security purposes and for easier track of finances in order to make smart investments decisions and make sure there is no overpayment or underpayment of taxes.
Note: one may also be able to deduct part of their real estate tax when filing tax returns if their home expenses allow. A real estate tax accountant can help and evaluate this case to case.
Frequently asked questions
Is real estate tax very high in Canada?
In general, cities like Vancouver and Toronto have high property values and low property taxes, while Fredericton, Winnipeg, and other low-value cities have some of the highest tax rates. However, there are significant differences between cities. For example, property taxes in Toronto are almost three times what homeowners in Vancouver pay.
My business or I am a co-owner, how do I compute my real estate tax?
Each venturer calculates its income based on its retained interest in the underlying assets. In this respect, the co-owners will generally share in the income and expenses associated with their undistributed share in the real estate. Co-owners can optimize their CCA credits in relation to depreciable assets (such as buildings) and other discretionary deductions to suit their tax situation
Are real estate and property taxes the same?
No, the treatment, as well as the asset under question, is different. Real estate only covers property, i.e., land or houses, while property tax would also include assets that are mobile, i.e., vehicles or even livestock.
What would real estate financial reports comprise of?
The transactions entered into the accounting system for rental properties are used to generate various financial reports on the properties at the asset and portfolio level, such as income statement, net financial statement (including financial assets and capital expenditure), balance sheet, cost statement of capital
Role rental, bank approval. The reports created by the real estate accounting system can also be generated based on a specific period, such as monthly, year-end, or the last 12 months.
How can I post my real estate transactions?
rent receipt in a real estate bookkeeping system normally has the Name of the tenant, address, rent received, Payment method, Rent payment period, Remaining balance due (inclusive of any late fees)
Bottom line
Property tax accounting in Toronto is essential for any tax filer who owns the movable or immovable property. Real estate accounting is usually not the first thing investors think about when investing in real estate, but it is an important part of owning and managing rental properties. With good accounting, the investor can better identify opportunities to increase rental income, reduce costs without affecting property value, and better monitor equity.