Whether you are a real estate baron with multiple properties, or just recently started to rent out a property, we know taxes can be a bit of a tricky subject to tackle for landlords submitting a tax return. And that’s where the Filing Taxes come to play.
This article covers how to complete and file a tax return for a rental property in Canada. All rental income must be reported on your personal, corporate, or partnership tax return (depending on how you own the property).
Rental income is any payment you receive being a landlord for the use or occupation of the property you rented out. You must include all amounts you receive as rent in your gross income and report it on your tax return.
Form T776 must be completed by the real estate or property owners, it is an integral part of the tax return. This form is used to determine the gross rental income, loss, all expenses that you may deduct during the calendar year. If you need some help when completing the form T776, you may check the Interpretation Bulletin IT-434, it provides detailed instructions. The boxes to be filled in this form are as following:
You must send this form to the Canada Revenue Agency for processing.
Rental income is income you earn from renting a property that you own or have use of. You can own property by yourself or with someone else. Rental income includes income from renting a house, apartments, rooms, space in an office building, or other real or movable property. Follow the below-mentioned steps to declare your rental income:
Gross Rental Income = Monthly rent * 12 months * (1-( vacancy rate %)/ 100)
Note: The vacancy rate (%) is the amount of time your property is empty and not making money.
Net Rental Income = Gross Rental Income – operating expenses – financing costs
Note: Prepaid rent is not a rental income, but it is a tenant’s deposit that you hold onto. It is only recognized as revenue when it is applied to the month (usually the last month of the rental term), to which the prepaid rent relates.
The significant benefit of disclosing rental income on your tax returns is the ability to reduce income by claiming deductible expenses. The following criteria are set by CRA, to determine which expenses are deductible:
Following is the list stated by CRA of deductible expenses:
You might own a depreciable property, such as a building, furniture, or equipment to use in your rental activity. You cannot deduct the cost of the property when you calculate your net rental income for the year. However, these properties may wear out or become obsolete over time, you are allowed to deduct their cost over a period of several years. The deduction is termed as capital cost allowance (CCA).
CCA is an annual tax write-off, calculated as a percentage of the property (excluding land). How much CCA you can claim each year depends on when you acquired the property and the CCA class to which it belongs. The CRA has assigned classes to particular types of depreciable property, and there are assigned rates for each class. The CCA schedule on CRA Form T2125 will guide you through these calculations when you are preparing your taxes.
Filing your tax return for rental property can be a tricky business. If you find yourself confused or overwhelmed, as could be the case being a landlord, feel free to reach out to Filing Taxes at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step towards proper management of your finances.