Tax rules, thresholds and administrative procedures can change. Confirm current official requirements and obtain advice for material transactions or unusual facts.
Start with gross rent, not bank deposits after deductions
Rental income includes amounts earned under the lease and may include parking, utilities, reimbursements or other charges. If a property manager deducts fees before depositing funds, the landlord should generally record gross rent and the management expense separately rather than reporting only the net deposit.
Mortgage payments are not fully deductible
A mortgage payment usually contains interest and principal. Interest incurred to earn rental income may be deductible, subject to the facts, while principal reduces the loan and is not an ordinary expense.
Assume a landlord pays $28,000 of mortgage payments during the year, of which $17,500 is interest and $10,500 is principal. The starting rental-expense amount is the interest component, not the full $28,000.
Repairs versus capital improvements
A repair generally restores or maintains existing property. A capital improvement creates an enduring benefit, replaces a major component or improves the property beyond its previous condition. The invoice label is not decisive.
Fixing a small leaking section of roof for $1,200 may be a current repair. Replacing the entire roof for $19,000 is more likely capital. Capital items are added to the appropriate property class or adjusted cost base and may be depreciated where permitted rather than deducted immediately.
Shared and personal costs
If the owner uses part of the property personally, expenses must be allocated on a reasonable basis. A landlord renting a basement while occupying the upper floors might use floor area and shared-use facts. Costs relating only to the rented unit can be identified directly; costs relating only to personal space should not be claimed.
Personal travel to inspect a distant property, meals and home-office costs require their own eligibility analysis and should not be claimed automatically.
Should a landlord claim CCA?
CCA can reduce current rental income but cannot generally create or increase a rental loss. It may be recaptured when the property is sold. Claiming CCA on a home or part of a home can also complicate principal-residence planning.
The choice should be modelled over the expected holding period. A small current tax saving may not justify future recapture or a more complicated change-in-use history.
The landlord's permanent file
Keep the purchase agreement, legal statement, land-versus-building allocation, mortgage documents, leases, annual interest statements, property-tax bills, insurance, condo statements, repair invoices and improvement records. Keep closing and renovation records for the life of the property because they may affect the eventual gain.
A yearly rental schedule should reconcile gross rent to deposits and each expense category to supporting documents.
This article provides general Canadian tax information and is not a substitute for tax, legal, financial or investment advice based on complete circumstances.