Investing in a new property can be very exciting; there are many ways you can use a house to generate money. You might do renovations on the house and sell it in a few years; others purchase properties as bed and breakfasts. A popular way of using property for income is by renting it out to tenants; but does collecting rent count as income for tax purposes?
The short answer is yes, it does, and you’ll have to pay income tax on revenue generated through rental properties. There are exceptions; sometimes you might want a member of your family to pitch in and help pay for expenses. Supposing the person dwells in your primary residence and is paying below fair market value, the rent would not constitute income and thus not be taxable.
Though rental income is taxable, there are many ways you can reduce your rental tax burden; expenses related to your rental property are sometimes tax deductible. There are two types of possible expenditures; capital expenses, which can give your property a lasting benefit or advantage, are usually not claimable in the year they are incurred, but can be claimed as capital cost allowance (CCA). Current expenses generally recur after a short period of time; maintenance and upkeep fall under the category. Current expenses are tax deductible the year they are incurred.
There are a great number of expenses that could be tax deductible. The advertising you must do to get tenants is often tax deductible, as is the current year cost of insurance for the rental property. Should a legal team be required to collect overdue rent, their fees are deductible from your rental income as well. Bookkeeping services and other professional fees relating directly to your management of the rental property may also be claimable.
The maintenance and upkeep of rental properties can also be deducted. Current expense maintenance costs for repairs and labour can be eligible, but your own labour is not considered an expense. Larger-scale operations with multiple rental properties may pay a management company to take care of their properties; this is a tax deductible cost. Similarly, Canada Pension Plan, Employment Insurance and Workers’ Compensation expenses for superintendents, landlords and other employees can be deducted.
Landlords who do not charge for utilities in their rental properties can deduct electricity, gas, and other utility expenses from their rental income. The costs of gas to travel to and from rental properties in your capacity as property manager may also be deducted. Property taxes may also be deducted for the periods in which that property was available for rent.
There are a great number of other complexities and deductions that could be taken when filing your rental income tax. Rental losses, for example, can sometimes be claimed, and capital costs can be complicated. A great idea for tax time is to hire a tax accountant; for tax accountants in Winnipeg, contact Compass CPA.