What landlords can deduct in Canada
Deductions and your rental property
march 15, 2023
If you are interested in becoming a landlord but are concerned about all the financial orchestration involved in managing a rental property. There are many important decisions to consider when you become a landlord. It is best to treat your rental like a business: research and buy the right property, hiring a company like Renting Toronto to ensure your tenants are screened properly and are a perfect match. You need to consider organizing the collection of rent, consider the future for any incidental fees or repairs and how you will file your property as part of your tax return. Becoming a landlord is a big investment, but it can be costly if you don’t perform your due diligence. Keep in mind that this post is a guideline and not financial advice. Always consult your Accountant/Tax Advisor and/or Financial Advisor when looking at such a large investment.
Tax Deductible Landlord Fees
Generally you can deduct most reasonable expenses that are related to your rental income. The Canadian government defines these expenses as either current or capital. Current costs reoccur on a regular basis, such as painting the exterior of a building or cleaning eavestroughs. Capital expenses occur less frequently but provide a lasting benefit, such as re-shingling an old roof, paving a cracked driveway or installing solar panels. However, if an expense is incurred only to improve the property value of your rental unit, it is likely not considered a capital expense. Visit the Government of Canada website to learn more about the difference between current expenses or capital expenses. Below are the highlighted landlord fees which are tax deductible in Canada.
ADVERTISING
Advertising fees associated with placing an advertisement in Canadian news outlets such as Internet Rental Sites & Newspapers are all tax deductible. This can also include finder’s fees.
INSURANCE
Your Insurance premium paid on a rental property are tax deductible.
RENTAL AGENT & MANAGEMENT FEES
Any amount paid to a company or person to manage your rental property is tax deductible. This includes any amount paid to a Rental Agent to find new tenants or a Property Management company to collect the monthly rent.
OFFICE EXPENSES
Office expenses for small items including pens, pencils and stationery are tax deductible. Larger items which are not purchased each year, including chairs and desks, are not tax deductible.
PREPAID EXPENSES
If you paid an expense in a previous year for which the benefit is received in the current tax year, you can likely deduct this expense. This is important for insurance payments that cover multiple years. Although you may pay insurance to cover several years, you can only deduct the insurance amount that is applicable for the current tax year.
PROFESSIONAL FEES
Legal services required for preparing leases or collecting overdue rent can be deducted, in addition to bookkeeping fees, audit fees, and accounting fees to prepare your financial statements.
PROPERTY TAXES
Any property taxes that were paid while your property was available for rent are tax deductible.
REPAIRS AND MAINTENANCE
If you invest personal labour into fixing your rental property, the value of your time and labour are not deductible. However, you can deduct the value of the cost of labour and materials for minor repairs or maintenance that are completed by a third party.
TRAVEL
You can deduct costs related to travel for collecting rent, supervising repairs or managing rental properties. This includes the cost of getting to the property but not room or board if travelling from out of town.
UTILITIES
If your rental agreement includes paying the utilities for your unit(s), you can deduct the cost for oil, gas, electricity, water and cable.
CONDO MAINTENANCE FEES
If you earn rental income from a condominium unit, you can deduct the expenses that you would usually deduct from it. You can also deduct Condominium Fees that represent your share of the upkeep, repairs, maintenance and other current expenses of the common property.
Operating Costs vs Operating Expenses
Landlord Fees that Cannot be Deducted
LAND TRANSFER TAXES
It is not possible to deduct the land transfer taxes you paid when you bought the property. Instead, this amount will be added to the cost of the property.
PENALTIES
Any penalties identified on your notice of assessment or notice of reassessment cannot be deducted.
MORTGAGE PRINCIPAL
You cannot deduct a loan on your rental property or a repayment on the principal of your mortgage.
VALUE OF PERSONAL LABOUR
Any expenses related to your own personal labour on the rental property are not tax deductible.
PERSONAL PORTION OF EXPENSES
You cannot deduct your personal portion of expenses if you live in the unit that you are renting. You can only deduct expenses related to the rented rooms and the corresponding portion of expenses related to the entire house. For more information, visit the Government of Canada website related to fees which are not deductible.
The GST/HST Rental Rebate
If you have purchased a newly built house or condo in the past two years, you are likely eligible for the GST/HST New Residential Rental Property Rebate. This rebate is specifically for individuals who purchase a property with the intent of renting to tenants.
At RentingToronto.com we take care of the whole process of finding you a quality Tenant, performing Credit Checks, Employment Verification, Fraud Checks, Lease Agreements and even Property Management. Our Tax Deductible Fee is equivalent to one month’s rent and includes the HST. With a Real Estate Agent they put up a Lock Box and leave it up to someone else to bring in a tenant … then charge HST on top of the one month fee! We meet every person in order to get a better understanding of who will be renting your property and then perform all of the pertinent background checks. Contact us today at 416-222-3681 so we can answer any questions your may have.