Is Land An Asset In Canada?

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As a prospective property buyer, you may be wondering whether land is an asset in Canada. The answer to this question depends on a few factors, including the specific type of land and its location. In some cases, land can be a very valuable asset that will continue to appreciate, but if you aren’t careful you could end up with land that has little to no real value.  Whether you’re looking to buy real estate for sale in Ontario, British Columbia, or anywhere else in Canada, we hope you find this information helpful in determining if it’s worth buying land in Canada.

What is an asset?

Before we jump into if land is an asset in Canada, let’s define asset. According to the Oxford Languages, an asset is:

  • “a useful or valuable thing, person, or quality.
  • property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies.”

An asset can be real estate property like land, which is considered a tangible asset because it’s in a physical form (you can touch and see it). Land is typically seen as a fixed or long-term asset that a company or person benefits from because it adds value and meets the intended requirements.

Is Buying Land in Canada A Good Investment?

While Canada’s landmass is huge and plentiful, there is a limited amount most see worth doing anything with. Because of this, many investors and developers see just how owning land in Canada can benefit them. In recent years, the price of real estate has continued to increase as more and more people want to own property.

Land is Versatile

While other investment plans can be restrictive, such as the stock market (only buying and selling), purchasing land as an asset in Canada has several methods that can be beneficial as it offers you the freedom to earn money in different ways. Some may want to build their home on a piece of land; others just want to hold onto it and eventually sell to a developer once the value has increased. Others use it to farm livestock or grow crops, which can provide them with many ways to profit from the land, especially if they decide to sell later on. Whether it be vacant land with plans to develop or just holding onto it and letting the value increase, there are many things land is good for.

Landowners (whether a business or person) will usually hold onto land for at least a year. Not only can land generate income, but it can help people survive financially. If financial hardships come up and cash is needed, selling land could be a way of obtaining the money.

Leveraging Loans With Land

Owning land can also be used as collateral for a loan. It shows strength, and lenders are more willing to do business with someone when they see fixed assets (like land) in their portfolio because they see the land as potential money in their pockets if a loan defaults.

If your land has a home on it, you can use it towards a home equity line of credit (HELOC) or a reverse mortgage. In Canada, homeowners who are 55 years or older can obtain a reverse mortgage, which allows them to collect payments of up to 55% of the home’s appraised value. The money is tax-free, and the landowner/homeowner can do whatever they want, including investing it elsewhere. This can possibly be written off too if the money is invested in an asset that’s income-producing. The catch is that the reverse mortgage will need to be paid back once the property is sold, or the homeowner passes away.

With a second mortgage, like a HELOC, you can obtain a loan or line of credit with your property. The interest rate is usually higher than a mortgage but is still lower than an unsecured debt, and the principal can be paid off anytime without being penalized.

Things to consider before buying land in Canada

We’ve established that land is an asset in Canada. Whether you’re looking at land for sale in Thunder Bay, ON, Surrey, BC, or anywhere else in Canada, there are a few things you’ll need to make a note of and be aware of so you can make the most of your investment.

Access to Necessities

As we mentioned above, Canada is massive, but not all land here is considered ideal. The main reason for this is the distance or lack of easy access to necessities like water. Owning land can be great, but if it’s not easy to access the things people need, others may not value it. When looking for land to buy in Canada, you’ll want to check water sources to see if water to your land comes from a provincial entity, local municipality, a well, and even a septic tank.If these are already installed, that’s great. If not, adding these things could add value to the property.

Zoning Status of Land

One of the first things you’ll want to do when you find a piece of land you’re interested in is check the zoning status. Some properties have limits as to what can be done with them. For example, is it a residential or commercial property? To take it a step further, can you build a single-family home on it, or is the property zoned for multi-family housing? Is the land even inhabitable, or is it in a flood zone? Knowing this information can help determine if the piece of land is right for what you want to do with it.

Value of Land

This may seem like a no-brainer if you’re considering investing in land, but it’s still an essential point worth mentioning. The old saying ‘location is everything’ really is true. Location is a big factor in value, but several things play a role in determining a property’s worth. This is where a real estate agent can help you figure out how much a piece of land is worth.

Prepare for Down Payment

If you’re looking to take out a loan to buy land in Canada, you’ll need to expect to pay a down payment. This amount can vary, depending on your circumstances like the type of land, which lender, and what you intend to do with the property. It is typical to put down around 20% of the total cost. Sometimes 5% is required, and others it can be anywhere around 25-50% of the loan that is needed for a down payment.

Clear Title For Property

You’ll want to find out if the land has a clear title during the buying process. You don’t want the property to have any liens because that could become an unwanted burden on you as the new property owner. A real estate attorney can help you determine if the property is free of liens.

Property Taxes on land in Canada

Whether you live in Canada or not, you can buy land to make money, but you’ll want to know the Canadian tax laws for real estate investments. Here are some things to make a note of:

  • When you buy land in Canada, you’ll pay a land transfer tax, which varies depending on the province you bought in. This tax is typically about 1% of the first $200k and then 2% of the remaining balance. You may be exempt from this tax if it’s your first property.
  • Municipalities also require annual property taxes based on the property’s value.
  • New homes are taxed through the federal Goods and Services Tax, but a partial refund may be possible.
  • If you plan to use the land as a rental property, it’s imperative that you are aware of the taxes before investing. The Canadian Income Tax Act requires 25% of the gross income every year or net income if you’re a non-resident, but you’ll need to complete an NR6 form. If you received net losses, the good news is that you can recover already paid taxes.
  • Also, taking out a line of credit, bank loans, mortgage property taxes are considered tax-deductible on investment properties.
  • If you are a non-resident selling property in Canada, the government receives 50% of the sale for withholding tax.

Bottom Line

So, is land an asset in Canada? The general answer is yes, but as you can see, you’ll have to look at several factors to determine if a piece of land will be financially beneficial. We hope that after reading this article you have a better understanding of what an asset is and how land can be a versatile and valuable investment.