2013 Personal Income Tax Questionnaire – Rental Properties
Today’s article relates to question #5 on the 2013 Personal Income Tax Questionnaire sent to clients.
DO YOU HAVE RENTAL PROPERTIES?
If you earn income from renting property (real or movable) you will need to file a form T776 with your personal income tax return for 2013.
Rental income can be earned not only renting out a whole house, but renting out an condo or apartment, a suite or room in your home, or even renting out a travel trailer or motor home.
Rental property can be held jointly, in a partnership or by 3 or more individuals (co-owners) where the income and expenses are reported in same percentage of ownership. If this is the case, the best and easiest solution is for one of the owners to get the rental statement prepared professionally and then share that statement with the other owners. This minimizes costs and ensures accuracy and consistency in reporting income from that rental property.
As Canadians have to report worldwide income, if you have a rental property in the US or any other foreign country, you will need to report that rental income on your personal tax return as well.
IS GST APPLICABLE?
Only non-residential rental income in excess of $30,000 a year is GST taxable. Therefore, if you were to rent out a condo or a travel trailer in short increments (for vacation usage), that rental income would be GST taxable
RENTAL EXPENSES (WHAT IS DEDUCTIBLE?):
The CRA states that “As a rule, you can deduct any reasonable expenses you incur to earn rental income.”
Below, I have linked to the front and back of a small brochure I created for the specific purpose of helping people with questions related to rental expenses. The brochure advises self-employed individuals on how to organize their receipts, so as to minimize the cost to have a T776 prepared as part of their personal tax return.
The brochure looks at:
WHERE are your receipts hiding
WHY taking the time (to organize your receipts) can pay off
HOW to organize your receipts
WHAT expense categories you should use
TECHNOLOGY receipts management tools
SOME FINAL NOTES:
1) If you own two or more rental properties, you can deduct reasonable motor vehicle expenses you incur to do any of the following: collect rents; supervise repairs; and generally manage the properties.
2) Reasonable expectation of profit – As per the CRA “If you lose money because you rent a property to a person you know for less money than you would to a person you don’t know, you cannot claim a rental loss. When your rental expenses are consistently more than your rental income, you may not be allowed to claim a rental loss because your rental operation is not considered to be a source of income.”
3) Costs related to the acquisition or disposition of a rental property are not deductible against rental income. Instead, they are added to the cost of the rental property for the purposes of calculating any gain or loss on the sale of the rental property.
4) Renting out part of a principal residence – If you rent part of your home (principal residence), you can deduct a portion of expenses you incur that relate to the entire building (ie mortgage interest, property taxes, utilities etc). The easiest way to do this is to calculate the square footage of the area you are renting as a percentage of the overall square footage of the entire building and apply that percentage to expenses incurred.
5) Capital expenditures vs repairs and maintenance – A capital expenditure extends or improves the useful life a property. Expenditure for repairs, to be a deductible expense, must relate directly to general wear and tear or damage that occurred as a result of your renting out the property. Expenditures that relate to improving the property or altering the property to make it more rent-able are considered capital in nature.
6) Change in use – You can be considered to have sold all or part of your property even though you did not actually sell it if there is a change in use (ie a change from your residence to a rental property).
For more detailed information about reporting a rental property on your personal tax return, the CRA has available Bulletin T4036.
If you have any questions about anything, please feel free to email me at firstname.lastname@example.org or post a comment below.