Can pre construction costs be capitalized? 

During the construction process of a condo, numerous costs are incurred by the developer. Significant parts of expenses incurred are included in the capital cost of the property or to the cost of inventory. Soft costs are not capitalized once the condo is finished, or ninety percent of the work completed. An occupancy certificate or completion permit issued by the concerned municipality establishes the building is habitable and finished. Interest paid by the builder on loan during the construction process can be included in capital cost.

 Even if the loan amount is not used in the specific project, interest paid must be capitalized. Though the computation is intricate, interest paid will be categorized under each venture. If the builder wants to avail tax deduction on interest paid, they must have rental or business income from the premises. 

Property tax

The property tax paid on the specific project can be allocated to the inventory cost until the building is completed. The cost of landscaping is exempted from the cost of capitalization under the Income Tax Law of Canada, as it is qualified for deduction in the financial year they were incurred. Life insurance premium can be deductable if the policy is pledged as collateral for the loan. To avail the eligibility, the builder or corporation must comply with certain terms and conditions. General and administrative expenses are not categorized under capitalization costs if the costs are not connected to the specific project. If the developer has other income from the property, then additional soft costs are deductable in the same financial year when they were incurred.

Growing market

Economists and real estate agents are expecting healthy growth in the housing sector industry in 2021. Move –up and relocation buyers are propelling the housing sector. Surging demand and low supply is likely to prevail, increasing the real estate price. Due to these factors, the average residential condo price is expected to grow by 4 to 6%. Citizens are opting for quiet, serene neighbors with less population and noise. Despite the global slowdown and lockdown due to the covid-19 pandemic, expectations are high, and confidence is strong regarding Canada’s housing market. Most people believe the return on real estate will outshine other investment options like bullion and equity market. New condos in Toronto and the outskirts are an excellent instance of the growing activity and anticipated expectations. Low-interest rates, inventory levels coupled with high demand give the necessary impetus to the Canadian housing sector.

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