CRA Rental Income: What You Can Deduct & Claim
Worried about the CRA rental income rules? Here is what you need to know about rental income, CRA rules, tax implications, expenses/deductions and much more.
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Rules for Rental Income CRA
According to the Canada Revenue Agency, you can deduct reasonable expenses that you incur to earn rental income. This can include homeowner’s insurance, maintenance fees, property taxes, mortgage interest, utility costs, and other expenses.
However, many of these deductions are not as straightforward as they may seem at first. You could potentially get into tax trouble if you make a mistake. Here is some information on the deductions on rental income CRA allows, and what you should watch out for.
Repairs and Maintenance
Small, regular repairs tend to be considered maintenance and thus these are expenses that can be deducted immediately on your yearly income taxes. For instance, the cost to replace a broken toilet or repair a damaged staircase handrail would be considered current expenses. However, that you cannot deduct the value of your own labour.
However, larger repairs such as renovating a kitchen or adding an addition to a property is considered to give a lasting benefit or advantage to the property. If this is the case, these expenses are considered capital expenses. You cannot deduct the full cost of a capital expense in the year that you claim it. Instead, you must deduct the cost over several years as a Capital Cost Allowance (CCA).
If you are earning rental income, the CRA will want to know the details of your deductions and ensure that you claim these deductions properly.
Motor Vehicle Expenses
If you own a property in your general area and earn rental income, the CRA allows you to deduct motor vehicle expenses if you travel to do repairs or transport tools and materials to your rental property in your vehicle. However, you cannot deduct the cost of driving to a property to collect rent.
If you own and earn rental income from multiple properties located in different sites, the CRA will also allow you to deduct motor vehicle expenses in relation to driving to properties to collect rents, supervise repairs, and generally manage the properties.
If the CRA Questions your Rental Income Deductions
The CRA has been cracking down on expenses relating to rental income. The CRA may contact you to clarify the specifics of any deductions that you have claimed. If the CRA determines that you have not classified your deductions properly or if you have claimed deductions that are not valid, you may be ordered to pay additional taxes.
If you are in this situation, it is a good idea to speak with an experienced tax professional. CRA processes, definitions, and rules are often very complex and difficult to understand. Making a mistake can be very costly. Trust a professional who has years of experience to communicate with the CRA on your behalf and resolve your tax situation. Contact us today for more information on how our team of accounting, legal, and ex-CRA professionals can help you.
Farber Tax Solutions can help you successfully deal with CRA problems. We utilize the experience of our tax experts to:
- 1| Offer a comprehensive solution that is focused on achieving the most favourable possible outcome for your tax issue;
- 2| Communicate with the CRA on your behalf and navigate the entire CRA dispute process; and
- 3| Offer a complete solution to your tax problems, including ex-CRA professionals and tax lawyers from Farber Tax Law.