Tax Season Tips for Landlords
Do you own a rental property in Regina and collect rent payments on it? If so, the Canada Revenue Agency (CRA) expects you to pay certain taxes.
Luckily, you may be able to reduce your tax payments by deducting some expenses from your rental income! These expenses include certain motor vehicle expenses, mortgage interest, capital expenditures, property management fees, mortgage insurance, and capital expenditures.
In today’s blog, we’ll walk you through everything you need to know about Regina rental property taxation.
What Does the Canada Revenue Agency Categorize as Rental Income?
Rental income can be defined as any revenue you’ve earned from leasing out your rental property. Examples of this include any rent you’ve collected from renting out an office space, condo, apartment, or even a single room in your house!
How is Rental Income Calculated?
The following is a basic overview of how you can calculate your rental income and minimize your tax payments.
Calculate the Rent Payments You Have Received
This includes any payments you’ve received in cash, via money transfer, or by cheque.
Calculate Your Operational Expenses
According to the CRA, landlords are able to deduct any reasonable expenses they incur in order to earn a rental income. These are generally split into two categories: capital expenses and current expenses.
Specific examples of these include expenses such as professional fees, advertising fees, and interest and bank charges. The more expenses you can claim, the more you can reduce your tax bill.
Deduct Any Losses You Have Incurred
You can deduct losses by filling out and submitting the T776 Statement of Real Estate Rentals form.
What is the Difference Between Current Expenses and Capital Expenses?
Current expenses are those that usually reoccur after a short period of time. One example is an expense you may incur to repaint your property’s exterior. Generally, current expenses include maintenance and repairs.
On the other hand, capital expenditures are those that create a lasting benefit. In other words, they are expenses that improve your property beyond what the initial value was. An example of this is installing vinyl siding on the exterior walls of your rental property. This would effectively improve the property’s value or condition.
To determine whether an expense is capital or current, the CRA uses the following questions:
- Has the expense offered the property a lasting benefit and improved its market value?
- Has the expense improved the selling points of the property?
- Is the expense part of the property or for a separate asset?
- Was the purpose of the expense to increase the property’s value or for increasing the selling price?
- What is the expense’s market value?
Of course, these aren’t the only questions that help the CRA determine expenses. You can learn more on the CRA platform.
Does the Type of Expense Really Matter?
Yes. Knowing the difference between expenses matters a lot when it comes to determining what expenses are tax deductible and which ones are not. Current expenses are only valid for the year in which they occur.
Contrastingly, capital expenses need to be separated in specific ways and applied over a longer period of time. As a landlord, it’s important that you know how to apply capital expenses so as to avoid making potentially costly mistakes.
What Expenses Can You Deduct on Your Regina Rental Property?
The following is a list of deductible expenses that you can claim when you purchase an investment property.
If you frequently drive to and from your rental property to do maintenance, you may be able to claim your vehicle expenses. These expenses may include repairs, maintenance, and fuel costs.
You can deduct costs associated with finding a tenant to occupy your rental property.
If you need to travel to perform your duties as a landlord, you can claim the expenses you incur.
These responsibilities include collecting rent, overseeing repairs, or inspecting the property.
Any fees you pay for legal services are also eligible for deductions. Examples include collection agency fees, legal fees, or property management fees.
You can deduct expenses for utilities, such as water, electricity, and gas.
You can make deductions on any money you have borrowed towards a rental property. A good example is a loan you have taken out to acquire the property.
You can also claim the premiums you pay for your rental insurance.
What Expenses Are Not Deductible?
There are certain expenses that the Canada Revenue Agency doesn’t allow you to use for tax deductions.
- Expenses arising from labour or services you perform on your rental property
- If you live in the same building you rent out, you cannot claim expenses not associated with the rented area
- Payments towards servicing your mortgage
- Taxes arising from land transfers
- Penalties from a CRA Notice of Assessment
How Does the Canada Revenue Agency Tax Rental Income?
How the CRA is going to tax your rental income will depend on the property’s ownership. A property’s ownership can either be individual, a partnership, or a corporation.
If you own the rental property as an individual, then the tax rate is going to be similar to your personal tax rate. You’ll need to use a specific form in order to complete the filing.
In a partnership, the income will first need to be split between the individual partners. Then, each partner will have to pay taxes based on their personal tax rate.
Finally, for those in a corporation, the tax rate will vary based on the location. The average tax rate across the country is 38%.
Tax season has a way of sneaking up on landlords every year. It’s never too early to start planning how you’re going to go about the process. Luckily if you use the information in this article, you can save yourself a lot of stress! What’s more, you may be able to maximize your tax savings by taking advantage of the available deductions you qualify for.
If you still find this process daunting, Leenan Property Management can help! Get in touch with us so that we can help you maximize and calculate your ROI!