Managing a rental property? Here’s what happens to your taxes.
February 27, 2017
Maybe you’re a real estate baron with multiple properties, or are just getting into the market by setting up a suite in your home. Either way, having a second property as a rental can be a good investment, but it also means being a landlord. Beyond leases, tenants and other details you’ll need to organize when you start receiving rental income, your neighbourly federal tax team a.k.a. the Canada Revenue Agency (CRA) will want you to report it. We’ve answered some common questions around how rental properties affect your taxes.
Have rental income to report? Here are some things you can claim
- If you have just one rental property, then you can claim vehicle expenses incurred to transport tools and materials to the property to do repairs.
- If you have multiple rental properties, then you can also claim vehicle expenses incurred to collect rents, supervise repairs and manage the properties. However, the expenses must be reasonable. If your property is in another province, then your airfare to check it out is not allowed.
- You can claim expenses like mortgage interest, property taxes, insurance, utilities and condo fees, and you can claim these even when you have no tenant and your property is available to rent.
- If you rent out a room of your home, then you can claim expenses related to the shared spaces such as a kitchen or bathroom. If your tenant has equal use of the kitchen or bathroom, then you could claim 50% for expenses.
I’m renting a room in my home to a relative. What should I report?
If you’re renting a room to a relative for less than Fair Market Value (FMV), than it’s not considered income and you don’t have to report it on your tax return. But if you live in a province with a rent credit, then the relative paying rent won’t be able to claim the credit. Landlords who charge FMV rent will need to complete a T776 Form – Statement of real estate rentals to report income and expenses.
I spent some money on my property. Can I claim these expenses, too?
If you repaired or renovated your rental unit prior to renting it, then the cost of the work is considered a capital expenditure. This means that it can’t be claimed as a current expense, but it’s added to the cost of the building, which will reduce your capital gain when you sell the property. The same treatment applies to any capital improvements you make after you begin renting it out. But – if you need to make any simple repairs, these don’t really qualify as an overall improvement to the property, so can be claimed as a current expense.
I have a rental suite in my home. How do I report it?
People with a rental unit in their principal residence need to pay capital gains on the portion of the house being rented when they sell. Let’s say you have a basement apartment that takes up 20% of the square footage of a home. You’d need to calculate the capital gain on 20% of your home when you sell. Since you’re using space in your principal residence to earn income, you lose the principal residence exemption on this part of the house. However, you would not lose the exemption if the rooms you were renting out weren’t a separate self-contained unit and you don’t claim capital cost allowance.
I’m ready to sell my rental. What should I know?
If you’re selling your rental property this year, then you’ll need to report the capital gain or loss on your tax return. Capital gains are calculated by taking your selling price and subtracting the purchase price, capital expenses and selling costs. The actual amount of tax you’ll pay depends on your gain and your income for the year, but only 50% of capital gains are taxed.
Having a rental property is a great way of earning some extra cash! Keep track of what you’ve spent and earned from your property to make reporting your rental income easier at tax time.