The fact that you found this video can make you millions in real estate, as it's not what you make, it's what you get to keep. This is why it's so important to understand the various tax strategies that are available to us as Canadians, because if we're paying less tax or in some cases no tax on the money that we earn, we can achieve our financial goals just that much faster. Stick around to the end of this video where I'll share my favorite hack for paying as little tax as possible. Hey, what's up? It's Darren Voros here. My mission is to help a thousand people create over a million dollars in net worth with real estate investing. Subscribe not to miss what's coming. Benjamin Franklin said in this rule, nothing is certain, except death and taxes. But strategic tax planning is what differentiates a successful real estate investor from, you know, the not so successful ones. So now I want to make you money with five ways to pay no taxes. Number five, the principal residence exemption. Simply stated, the tax law in Canada says that if you inhabit a property as your primary residence, if and when you sell that property, you are exempt from paying tax on any increase in value. This can be very valuable in conjunction with strategies like house hacking or even buying and selling properties to save significant amounts of tax. Having said that if you're using a strategy like house hacking where you are converting one of the units to a basement suite and potentially renting that out to someone else, you will be required to pay capital gains on the portion of the property that is being used as a rental. Similarly, when flipping properties, if the government sees a repeated pattern that you're moving into a property, improving it, selling it and claiming as your principal residence, they may clamp down on this and rule that you are in fact running a flipping business. And not utilizing this tax savings as it was meant to be utilized. So be aware of these two items. And as always, when it comes to tax matters, make sure you consult a qualified professional to give you tax advice and don't simply rely on a video you watched on YouTube. Number four, setting up a corporation to hold your real estate. If you're not familiar with how taxes work, individuals are taxed different than corporations. Apple avoided $40 billion in taxes. How's that for a headline? It triggers the public and makes you wonder how can a company valued at $2.2 trillion pay very little tax? It's not because they're doing things illegally, in most cases. It's just that there are many more options to utilize within a corporation versus your personal name. With personal taxes, you get your deductions taken off before you take home your money. With corporations, you get to take home your money first and pay tax on what's left over after applying all of your expenses against that income. For instance, if you were to earn $30,000 in additional income on a rental property and you hold that property in your personal name, you would be required to add the $30,000 to your income and pay tax on that money. You can have write-offs against that $30,000 of additional income, but you'll have to prove those write-offs are related to that property. In a corporate setting, let's say you earn that same $30,000 in revenue. The way that corporate taxes work, you write off all of your expenses against the income first and then whatever's left over at the end, you pay tax on. This sounds like it's the same as earning money in your personal name, but there are many more ways to write-off income in a corporate setting. For instance, you could have an employee in your corporation. That employee could be you. You can also take a dividend payment, which has other tax benefits as well. In most cases, corporations pay little to no tax because of the flexibility of options available that are not usable on the personal side. Downside to corporations is that they cost money to set up and you will have to file a corporate tax return each year, which costs more than a personal tax return. But in most cases, the benefits still outweigh the drawbacks. Number three, using a bear trust. A bear trust agreement simply states that the property or the income you're receiving is being held for someone else or something else, like a corporation. Let me give you an example of how this can work. I can hold a property in my personal name with a bear trust agreement in place that my lawyer draws up. The bear trust states to the taxman or woman that the property is being held in trust by me, but is actually owned by my corporation. An even better example of this is a strategy I've used in the past called flip to JV. This strategy allows you to make a quick cash through the benefits of flipping. But when you sell your portion to your partner, you drop a bear trust agreement that states that even though you no longer are on the title or hold the mortgage, you still own a portion of the property. And you haven't liquidated your interest. Therefore, you are not required to pay tax on the increase in value yet. For a full explanation of this strategy, check out this video where I explain the step-by-step process of the flip to JV strategy right after this video. Number two, the tax-free savings account. The government of Canada didn't do us any favors when they created this product and called it a tax-free savings account. This should have been called a tax-free investment account because that's exactly what it is. You can use this account to invest in real estate through private mortgage lending or REITS, which are real estate investment trusts, or you can even invest in the stock market in companies that are heavily focused on real estate. The problem is, most investors are not even aware of the ability to use their tax-free savings account. Sorry, investment account. Within real estate, because most of the major financial institutions in Canada don't offer what's called a self-directed TFA account. So you'll need to search out and find a financial institution that allows you to use your TFA in a self-directed manner within real estate. There are three that I know of, Olympia Trust, Canadian Western Trust, and Computer Shed. The long and short of it though is that if you earn money inside of your TFA, you do not pay tax on that money, which is why it's called a tax-free savings account. I love providing free value, but there's so much more to learn that I can't fit into these videos. So if you're looking to up your real estate knowledge, I'm running a series of trainings starting in September of 2021. For more information on the various offerings and pricing, check out my website at darrenvaroes.com. Now, my number one, my favorite way to avoid paying tax on real estate income is what's called a cash out refinance. If you have a mortgage on a property, as you make mortgage payments, the principal amount on the mortgage goes down over time. In theory, the property value generally increases over time through market appreciation or simply through inflation. As a property value grows and your mortgage shrinks, you create equity in your property. You can access that equity through a cash out refinance. This is a new mortgage put on the property for a higher amount than your initial mortgage. So if you can qualify, the bank will give you a new higher mortgage and you pay out your lower mortgage, and if there's money left over, you get to keep that. Now, I know what you're thinking. I'm making money so I should have to pay tax on that money. Well, that's not the case. The reason why you don't have to pay tax on that money is because it's considered a debt and not income. Because you're increasing your mortgage amount, you're increasing your debt, and even though you are walking away with cash in your pocket, there's no tax to be paid on that money that is considered to be associated with debt. Q the Happy Days. Now, my favorite hack when it comes to tax strategies is to combine as many of these strategies and a single transaction as possible. You could use house hacking to acquire the property as your principal residence. Have a bear trust agreement to your corporation and also use a cash out refinance strategy to pull equity whenever it's available. Again, check with your tax professionals to make sure that everything you do is legal and above board with the Canada revenue agency. If you have questions about tax strategies or any other real estate related questions, feel free to drop them in the comments section below and I'll do my best to answer them even though I am not a licensed accountant. To continue your education, check back here every Tuesday when I release a new video for additional tips and tricks in relation to real estate investing, you can also follow me on Facebook and Instagram where I post regularly. Thanks for watching and I'll see you soon.