Four lessons in, you know why buildings are priced on income, what scale buys, how to read a rent roll, and why the financing is better than you thought. This lesson is the counterweight — the costs, the taxes, and the situations where buying a building is the wrong move. We’re sending it in the middle of the course, not buried at the end, because you should hear it from the people who’d like to work with you someday: the costs are real, and pretending otherwise is how people get sold.
Canada has no 1031 exchange. In the United States, investors can sell a rental property and roll the proceeds into a bigger one with tax deferred. Not here. If your path to a building runs through selling existing rentals, every sale is a taxable event: the capital gain — sale price, less selling costs and your adjusted cost base — has a 50% inclusion rate: half the gain is added to your income in the year of sale.
CCA recapture is the line people forget. If you’ve been claiming capital cost allowance (depreciation) against rental income over the years, it comes back when you sell — as fully taxable income, not a capital gain. Owners who claimed CCA for a decade sometimes discover this at their accountant’s desk in the year it’s too late to plan around. If this paragraph applies to you, it’s worth a conversation with your accountant before any building plan exists.
The purchase side has its own costs. Land transfer tax on the new building — doubled inside Toronto. The CMHC insurance premium from Lesson 4, added to the loan. Legal, inspection, environmental and appraisal costs that scale with the asset. Individually reasonable; collectively, real money that belongs in your math from day one, not discovered at closing.
And here is when a building is the wrong move. Don’t consolidate into a building if your existing properties carry locked-in low-rate financing with years to run and positive cash flow — the tax on selling them and the low-rate financing you give up may cost more than the building earns back on your timeline. Don’t buy if your horizon is short; this asset pays for its entry costs over years of holding, not quarters. Don’t buy with your last dollar — buildings need reserves, because roofs and boilers don’t schedule themselves around your cash flow. And don’t buy because a course made compounding look exciting; buy because you’ve run your own numbers, with every one of these costs in them, and the math still works. The Underwriter and Disposition Proceeds are free precisely so you can find out before anyone’s commission depends on your answer.
No homework tonight. Let this one sit. The next lesson — the compounding mechanic — is where the whole course has been heading, and it lands differently once you know the full cost.
Go deeper → What it really costs to run · Where returns leak
Education, not advice. Tax treatment depends on your structure and circumstances — personally held versus corporate changes the arithmetic materially. Speak with your accountant before acting on anything in this course.