Real estate traditionally takes a back seat to taxes and other investments as the year begins even though real estate represents some of the best investment and tax opportunities the Canadian government provides.

The first four months of the year have become the Canadian money season. RRSP hype reaches fever pitch over the first 60 days of the year. Then income tax season swings into action, ending abruptly on April 30, the main filing deadline. Financial Services industries have turned these two income tax deadlines into a multimillion-dollar annual assault on the Canadian public that is marketed as information and support, but that rivals retailers' Christmas bonanza.

Mutual funds, stocks and bonds receive investment attention because that's what the Financial Services Sector sells. The Canadian Real Estate Industry has not traditionally leveraged this heightened interest in investment to help Canadians see their homes and cottages for what they are -- valuable investments with strong tax advantages. The reality is that real estate, on average, represents over 40 per cent of individual personal net worth, according to Statistics Canada.

Residential and recreational real estate buyers are usually taken through a different sales stream than investors. Shouldn't all buyers be encouraged to be interested in return on investment and tax strategies regarding the largest purchase of their lives? Since real estate can represent more than 60 per cent of net worth on retirement, successful real estate investing can offer the financial step-up from a future otherwise dictated by income levels and savings patterns. To help buyers understand why investment potential should be at least as important a deciding factor as decor and lifestyle image when buying condominiums, townhomes, houses and cottages, here's a key consideration for successful investing -- capital gains taxation, income tax on the net difference between the cost of the property and the sale price. The profit or capital gain made on your principal residence is tax-free.

• With real estate selling for thousands and even hundreds of thousands over the original purchase price, many Canadians have a lot of tax-free profit to celebrate.

• Without the principal residence exemption, 50 per cent of the capital gain realized when a home is sold would be added to the owner's income and taxed at their marginal tax rate for that tax year.

No property is automatically considered a principal residence. You can choose which property to designate, but you can only have one at a time. A vacation property such as a mobile home, houseboat or cottage, may also qualify as a principal residence, even if it is lived in only a few months of the year. Since a principal residence may be located outside Canada, your snowbird retreat may be eligible.

How are you going to ensure you'll celebrate the greatest amount of tax-free profit possible when you sell?

The first step toward achieving the greatest possible profit on the sale of your principal residence is to start with the best property you can afford. That's not necessarily the one with the best decor nor the one with the most builder perks. It may not even be the largest one.

"Buy the least property in the best location" is the investment axiom. Spend time learning which are the preferred neighbourhoods and how streets rank within each area if you want to own a house. For condominiums, location has a double whammy. Where the complex is situated matters and the location of a unit within the complex is significant, too. For highrises, the side of the building and the floor are important since views can have value. Each townhome complex has different value factors in play to determine the best investment.

Real estate professionals that offer buyer agency services know where value lies in their trading areas for each purchasing price range. Explain your investment goals and talk value to a knowledgeable real estate professional before you start viewing specific properties, get hooked on an open house or are swept away by the choices in a developer's showroom. Since most people move up in price range and therefore location with each piece of property they own, what property are you aiming for as you build personal wealth over the years ahead?

Next column: Part 2: "Protecting your profit." Join PJ Wade as reader queries are addressed and a variety of capital gains strategies are offered.

Published: January 10, 2006

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Futurist and Strategist PJ Wade is "The Catalyst" - intent on "Challenging The Best to Become Even Better." PJ earned this title by translating the dynamic impact of Boomers and their multi-generation families into relevant insights that start people thinking and taking action—in business and in life. Author of 8 books and more than 1800 published articles, PJ encourages individuals to become their own futurist. PJ writes and speaks about the insight, knowledge and solid decision-making skills that professionals and their clients need to live and work in this vortex of change. For instance, since PJ knows that home is headquarters for the new decades-long "unretirement," she wrote the popular book "Reverse Mortgages: Best Friend, Worst Enemy...Your Choice!", which is filled with suggestions and cautions on protecting, building and managing home equity. Her new business book, "What's Your Point?: Cut The Crap, Hit The Mark & Stick!" will be published in 2012. As The Catalyst, PJ provides strategic communication, client appreciation and advanced education services to the financial, tourism, lifestyle and service sectors - and the clients they serve. A frequently-quoted financial and business commentator, PJ is a thought-provoking strategic speaker who offers practical, real-life suggestions on leaving "the box" behind and embracing Forward Thinking - a talent she regularly demonstrates in this column. For more on keynotes, blogs, books and information on a range of 21st-Century topics, visit TheCatalyst.com.