Rental Property Tax Preparation
I rent my place, how can I claim my expenses?
If you own a property and rent the whole place or a part of it, you must claim the rental income you earned during the tax year. If you have a partnership in rental income, you should provide a partnership percentage to your tax preparer. We have created a template for you to be able to keep track of your expenses on a spreadsheet.
The rental income can be claimed in two methods:
The first one is the accrual method which means that you report your income in the fiscal year, no matter when you receive it! You also deduct expenses in the fiscal year, no matter if you paid them or not.
The second method is the cash method which means you report the income that you received in the fiscal year. You also deduct the expenses that you actually paid in that period.
Note that you need to be consistent throughout the years to prevent double-counting or missing some income and expenses.
If you rent the whole place, you can claim 100% of the expenses. If you rent a part of the place you are living in, you need to calculate the personal use portion. There are two ways to calculate the personal use percentage.
Personal use % based on Sqm = Square meter rented/total square meter
Personal use % based on # of rooms = Number of the rooms rented/ total number of the rooms
There are two common types of expenses when it comes to rental income. The first one is current expenses which provide short-term benefits, and the total amount can be deducted in the tax year. Some of the current expenses are listed below:
Advertising, Insurance, Interest, and Bank Charges, Office expenses, Professional fees (legal and accounting fees), Management and administration fees, Repairs and maintenance, Salaries, wages, and benefits (including employer’s contribution), Property taxes, Travel, Utilities, including gas, Wi-Fi, hydro, electricity, and city utility, Motor vehicle expenses (not including Capital Cost Allowance), and other expenses.
The second type of expense is called capital expenses which provide a benefit that lasts for several years. That is why the total amount can NOT be deducted in the tax year. However, you can deduct Capital Cost Allowance, which is the cost of capital over several years for the tax period. According to the CRA website, capital expenses include the price of your purchased property, legal fee and the costs related to purchasing the property, and the cost of furnishing the property.
Note that you need to give your tax preparer the total expenses, including rental and personal, if there are any. The tax preparer will calculate the rental portion based on the personal use percentage explained above. All the information mentioned above is needed to fill out T776 for your personal tax return. If you need more information on rental property tax preparation, you can check out the CRA website or simply email us at email@example.com.