Tax saving tips for Canadian rental properties

Canadian Rental Properties tax saving tips 

 

Tax saving tipsEquipment rental for Renovations

General contractors and renovators can claim rental fees and insurance on equipment required.

Tax saving tipsRental Properties Income and Gains​ Depreciation Expense (CCA)

The property should be an allocation between land and buildings as depreciation expense (CCA) can be only claimed on building portion.​

Cost of the property

  • Tax saving tipsIt includes extra cost on the property and are not totally deductible against income the extra/other cost are like:
  1. GST (on newly built property) added to the cost or may be eliminated.
  2. Legal fees
  3. Land transfer Tax
  4. Ontario New Home Warranty Program
  5. Municipal & provincial certificates
  6. Registration on closing
  • These costs will reduce the capital gain on the sale. (or may be pro-rated to land and building)

Interest Expense

  • Tax saving tipsIt is deductible only if it was related to the loan/mortgage for the purpose of earning income or investment properties.

 

Repair and maintenance

  • Tax saving tipsMajor renovations may or may not be deductible depending on the nature of the renovation that is required to be capitalized as a cost of property.

Cumulative Recaptured CCA:?

  • Tax saving tipsThe cumulative recaptured is that which is added back to the income in the year in which the property was sold.

 

Borrow to invest, save to buy

  • Tax saving tipsThe days of debt-free living are passing fast and almost everyone in the country
    is carrying some type of debt.
  • Debt can, in a small way, help to reduce your tax bill if you incur the right type.
  • A loan to
    buy a car, or that mahogany end-table you’ve had your eye on, is not the right type.
  • A loan to buy an investment is.

 

Tax saving tipsClaim those Renovation and Repair

  • If you make a claim on new schedule 12, the eligible expenses for renovation supplies, such as lumber, flooring, etc.,
    that were purchased before midnight on Jan 31 will qualify, even if they were installed afterwards.

Tax saving tipsRental Income

  • Claim all expenses incurred to earn rental income such as taxes, insurance, minor repairs and maintenance, interest expense and accounting fees paid to have the rental statement on your tax return prepared. Do not expense the cost of major repairs or additions to your property. Claim capital cost allowance to reduce your rental profit to zero.
  • Rental income is based on the accrual method and therefore any expenses incurred but not paid such as property taxes may non the less be claimed in the year to which they apply.
  • Consider purchasing rental property that will generate a profit in the name of the family member with the lowest net income, or consider income splitting with another family member.​

Tax saving tips​Can’t Claim Mileage For Collecting Rent​

The Canada Revenue Agency (CRA) specifically states that you cannot deduct motor vehicle expenses you incur to collect rents.

The Canada Revenue Agency (CRA) considers these to be personal expenditures.​

Note that the rules differ if you own more than one property.​

Tax saving tipsRepairs & Maintenance of Rental Properties

Repairs and maintenance are a very tricky area from a tax perspective. Generally speaking, when you make small repairs or routine maintenance to your rental property, you are incurring a current expense and can immediately take this as a deduction against your rental income.​

Tax saving tipsRenovation versus Repair expenses:

The situation becomes more complicated when you are making larger expenditures. ​​

For example: if you were to tear out an ​outdated (but functional) washroom in your rental property and replace it with a brand new modern one, you are probably making a lasting improvement to your investment rather than a simple “repair” to a broken component. ​​

In this case you would not be permitted to deduct the expenditure. Instead you would capitalize the renovation and depreciate it over an extended. ​

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