Canadian Tax Consideration for your Rental Property - Important!

Ask-Her Tax + Bookkeeping Inc.
April 12, 2022

Are you renting property in Canada?

Here are some important things you need to take into consideration regarding tax!

First off, any income that you earn must be reported on your tax return and that includes your rental income. If you are a co-owner you will of course, only need to report your share of the income as well as the expenses.

In Alberta the rates are from 25% and can be as high as 48%. This type of income is taxed at your marginal rate similar to interest income. Only your NET rental income is taxed. You can bring down those taxes payable.

Common deductible expenses

Here is a list to take into consideration when determining the profitability of your investment:

• Utilities

• Property taxes

• Advertising costs

• Insurance premiums

• Condo fees

• Mortgage interest

• Repairs and maintenance

Capital Cost Allowance:

The CCA (Capital Cost Allowance) deduction is one to consider also.

Here you can claim against your building and other capital assists used to earn income. These are things like appliancesand tenant improvements.

By claiming the CCA it is similar to depreciation. It allows you to deduct the cost of capital investment over time.

Now here is the downfall to that; CCA deductions that are claimed are often reversed and included as income at the time you decide to sell. In many cases, CCA deductions are a valuable tax deferral, rather than true tax savings. Unfortunately, CCA deductions cannot be used to create or increase your rental loss.

Capital vs. Current Improvements:

Here, this is another curve to be aware of.

The CRA (Canada Revenue Agency) the distinction between “Current” expenses (these are deductible) and “Capital” expenses (these are not considered deductible).

Capital expenses are referred to items that will have a lasting benefit and an overall improvement to the property. So, let's say you replaced your roof or added a deck. The CRA would consider this a Capital expense, because it is an improvement to the overall property. But you can still claim CCA.

Current expenses are referred to maintaining and repairs, you know restoring the property to its original condition. Like sanding and repainting that old fence is a current expense. This type of expense is consumed without a lasting benefit.

Partnership with Rental Property(s):

Okay so; you want to get into renting with your friend or even a family member. So you join forces to acquire a rental property. The CRA ( Canada Revenue Agency) considers you as co-owner and your business, a partnership.

This partnership is like a sole proprietorship and isn’t a separate legal entity. Therefore, you would be wise to have an agreement stating that it is based on a ratio that all parties agreed to. An example may be 50% ownership. Meaning that all parties involved will receive 50% of all income and also take on 50% of all liabilities (expenses).

Just remember as a partnership you are required to incorporate your respective share of the rental income on your personal taxes. This is all reported on the (T5013) Statement of Partnership Income.

A final note on Rental Loss and how that can occur. For example, watch out for tenants moving out and the length of vacancies or renting below Fair Market Value. You’ll want to be on your game!

Best advice; speak to your accountant. Need an accountant? Reach out to us if you’re in Alberta and we can help!

We hope you found this informative as well as an enjoyable read.

Miigwetch | Thank you

Shelilia Vivier - CEO & President

Photo of empty room by Phil on Unsplash (edited)