Have you ever wondered what rental property tax deductions you can claim in Canada? As a landlord, it’s important to be aware of the different deductions you can take advantage of to minimize your tax liability. While some deductions are common, others may surprise you.
Our team of experienced lawyers has put together a list of tips to minimize your rental property tax deductions in Canada. Read on to learn more!
- 1 The Difference Between Current Expenses and Capital Expenses
- 2 Things That Determine If an Expense is Capital or Current
- 3 Deductible Rental Expenses
- 3.1 Home Insurance
- 3.2 Interest and Bank Charges
- 3.3 Professional Fees (Both Legal and Accounting)
- 3.4 Advertising
- 3.5 Utilities
- 3.6 Deduct
- 3.7 Repairs, Maintenance, and Improvements
- 3.8 Travel
- 3.9 Prepaid Expenses
- 3.10 Office Expenses
- 3.11 Property Taxes
- 3.12 Salaries and Management Fees
- 3.13 Motor Vehicle Expenses
- 3.14 Other Expenses
- 4 FAQ: Rental Property Tax Deductions in Canada
- 4.1 What Expenses Can I Claim as a Landlord in Canada?
- 4.2 What Tax Deductions Can I Claim as a Landlord?
- 4.3 How Do I Avoid Paying Tax on Rental Income in Canada?
- 4.4 How Much Can You Write Off for Rental Property?
- 4.5 Can I Deduct Furniture for a Rental Property?
- 4.6 How Can I Reduce the Tax on My Rental Property?
- 5 Conclusion
The Difference Between Current Expenses and Capital Expenses
Before we learn tips on saving tax on a rental property, it is essential to know the difference between current and Capital Expenses. With these expenses and knowing the right landlord tax deductibles, rental property depreciation in Canada is possible.
The current expense is reoccurring. It reoccurs after a short period. An example of it would be re-painting a desk or any other property. That also includes repair and maintenance.
Capital Expense is a lasting advantage or improvement that raises the property’s market value, like adding a vinyl siding to the exterior or an attached deck to your property.
You can claim Capital expenses in rental properties. It is possible to deduct these expenses fully.
Things That Determine If an Expense is Capital or Current
- The expense of the market value.
- If the expense is a betterment toward the property’s market or selling value.
- The expense could be for a separate asset or just a part of the said property.
- If the expense has been made to raise the market or selling value and then sell the property or not.
- If the expense has been made for using it in a suitable condition or not.
- The result of the expense is it would have an economic life that would last more than one year.
Deductible Rental Expenses
These are the expenses you can deduct from the rental property taxes on your rental property. Below are their definitions and information on where you can apply them, and tips on how to get deductions.
Luck is in your favor if your properties are insured and you have paid insurance premiums toward the coverage of the rental properties. You can deduct only the current year’s coverage, even if the premiums offer coverage for over a year.
If your entire residence/ property is rented, you can ask to deduct the full money. If only a portion of the property is rented, then only ask for that portion of the rented property.
Interest and Bank Charges
Mortgage leads to legal fees, appraisal, mortgage application, etc. You can ask for the total money for deduction in this case. Make sure to leave out the mortgage principal as the mortgage principal cannot deduct that. Only ask for a deduction for soft costs.
Professional Fees (Both Legal and Accounting)
You can deduct the fees for legal fees such as property management, legal fees, accounting fees, and consultary fees.
You cannot deduct fees for purchasing a rental property from the gross rental income. Instead, split them into land and building and then add them to the specific costs they fit in.
You can claim a full deduction for the cost of advertising because they are directly related to your property. That includes advertising on newspapers, websites, and trade publications.
You can claim a deduction of the portion of the property on rent. If the entire property is on rent, you can claim a full deduction.
Repairs, Maintenance, and Improvements
You can incur repair and maintenance costs, including labor. Examples include fixing a broken door or window and current expenses.
Examples of improvements include electric wiring, lighting, and plumbing. You cannot deduct improvements from the year they were incurred.
You can deduct the expense for travel- if the travel is related to the property, such as collecting rent or maintaining the property. You could not claim a deduction if the expense were for work to home or otherwise. That also includes boarding and lodging.
Travel expenses may only apply if you rent multiple units instead of one.
If you use public transportation, you can deduct its expenses when they are property-related.
If you use a vehicle, you can deduct by mileage rate or by the costs of gasoline, car loan, repair, maintenance, parking fees, tolls, license application, etc.
Prepaid Expenses are those which need to be paid ahead of time. So you can claim any prepaid expense you have made.
You can deduct the cost of stationery such as pens, pencils, paper clips, etc. You can only do that for those that were bought for property-related purposes. You cannot deduct the cost of office equipment such as computers, chairs, printers, etc.
The tax you pay to your municipality can be deducted for the current year. That includes only the portion of the rented property. You can claim a percentage of the rented square footage.
Salaries and Management Fees
If you have hired property management for your rented properties, real estate agents, and accountants, you can deduct the expense you had to make for them.
Motor Vehicle Expenses
Under certain conditions, you can deduct specific motor vehicle expenses. That also depends on how many rental properties you own.
You can deduct condominium fees, landscaping costs, mortgage interest, and lease cancellation payments, but they have certain conditions.
FAQ: Rental Property Tax Deductions in Canada
Some frequently asked questions related to rental property tax deductions in Canada are as follows:
What Expenses Can I Claim as a Landlord in Canada?
Landlords in Canada can claim various expenses related to their rental property. These include advertising, repairs and maintenance, insurance, utilities, and travel.
What Tax Deductions Can I Claim as a Landlord?
You can deduct a wide range of expenses as a landlord. These include repairs, mortgage interest, local travel, etc.
How Do I Avoid Paying Tax on Rental Income in Canada?
You can avoid paying tax on rental income in Canada by claiming all the expenses related to your rental property. These expenses must be legitimate and incurred only to rent out your property.
How Much Can You Write Off for Rental Property?
The amount you can write off for rental property depends on the type of property and the expenses incurred. Generally, you can write off up to 20% of your rental income.
Can I Deduct Furniture for a Rental Property?
Yes! Furniture cannot be deducted as a rental property expense. However, if the furniture is used for business purposes, part of the cost may be deductible.
How Can I Reduce the Tax on My Rental Property?
There are several ways to reduce the tax on your rental property. These include claiming all the expenses related to your property, setting up a business, and using the correct tax structure for your rental business.
Many expenses can be deducted when renting a property. It is important to know what they are and how to deduct them. Also, it is vital to keep track of all the receipts related to the property. This will ensure that you can deduct tax as much as possible.
By following the tips in this article, you can make sure that you get the most out of your rental property tax deductions in Canada.