Tax Considerations For Rental Income

With the increasing cost of owning a house, having an income suite or renting out a portion of your home is a great way to help with your mortgage payments or earn some extra income. If you are earning rental income you will want to ensure that you are claiming all the eligible expenses and the appropriate proportion of expenses to reduce or eliminate any taxable income.

Since the home has both a personal and rental use, the expenses that are attributable to the entire property will need to be appropriately proportioned between the personal portion and the rented portion. The easiest way to do this is to use the square footage of the rented area divided by the houses total square footage. Expenses directly attributable to the rental unit would not be proportioned. The same goes for expenses that are only attributed to the personal portion.

Common expenses that you should be deducting against any rental income are:

• Advertising. This would be advertisements you placed online or in print advertising the rental unit.
• Home Insurance
• Mortgage interest and interest on money borrowed to improve the rental unit. The mortgage interest would be prorated based on the portion of the property that is rented, but any interest on money borrowed to renovate or transform a part of the house into a rental unit would generally not be proportioned.
• Property taxes
• Utilities
• Legal, accounting and other professional fees
• Office expenses
• Any management or admin fees related to the rental unit.
• Repairs and maintenance. Any expenses incurred fixing or maintaining the unit are deductible. However, it should be noted that you cannot deduct the value of your own labour.
• Capital Cost Allowance (CCA) on depreciable property. Depreciable property would be items purchased to use in the rental unit such as: furniture, equipment, etc. The amount of CCA available to claim is dependent on the type item purchased as each type has a separate class and each class is assigned a specific rate. It should be noted that claiming CCA on the rental building itself may impact the principle residence deduction, thus you should contact your accountant before claiming such a deduction.

The resulting net income or loss is included on your personal tax return. The CRA may request support for expenses claimed, so it is always a good idea to ensure that you have adequate documentation and support for all your expenses.

If you require any further assistance please contact one of our qualified tax professionals.

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