Many people who have purchased rental properties for the first time have a sharp learning curve says Edmonton bookkeeping. Not just the fact that they can report their rental income personally. But once they do that, there rental expenses can then be claimed on their personal tax return as well.
However, this is not as simple as all of the expenses that they incurred by maintaining their rental property can simply be claimed. Because Canada revenue agency has a large number of exceptions and rules that must be followed.
The first rule that people need to keep in mind. Is that there rental income is considered personal income. As long as they are not charging for any additional services in relation to that. A great example of this. Is property owners that offer cleaning services, lawn maintenance, shoveling the sidewalk for additional money.
And even people who rent out one or more rooms in their home. Might offer meals prepared at an additional cost. But when this happens, Canada revenue agency starts considering it a business, and therefore it must be claimed as business income. By filling out a T2125 form and filing it alongside their personal tax return.
There are many things that a property owner needs to keep in mind. And whether they can deduct utilities is one of the most common questions that Edmonton bookkeeping gets from a first time rental property owner.
And while a property owner is allowed to deduct the utilities that they pay for as a rental expense. They need to ensure that it is outlined in their rental agreement. Not just that the property owner will be paying for the utilities.
But exactly what the utilities are. Because some people might assume that it is gas, electricity and water. But might exclude anyone of those. Or include things like cable, landline, or Internet.
When it comes to people who are renting a room out of their home. They can also deduct the utilities as a rental expense. But Edmonton bookkeeping cautions these property owners.
To ensure that they are claiming only a percentage of their utilities. Because if they claim over 50% of the utilities as a rental expense. They will lose their principal deduction.
Another expense that many people wonder about when they have their first rental property is if they can deduct property taxes. Canada revenue agency allows property owners to claim that as a rental expense.
However, if the property has not been available to be rented for the entire year. They can only claim property taxes for the percentage of the year that it was available.
All of these rules that exceptions can make it complicated for someone who is renting out property for the first time. However, if they feel they need any extra help in completing their personal income tax. Or if they have any questions. They should simply hire and Edmonton bookkeeping company to take care of their tax return for them. So that they do not end up making costly errors on their tax return.
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As long as the income that a person gets from renting out their property is considered personal income says Edmonton bookkeeping. They will be able to claim their rental expenses. As long as they are following Canada revenue agency’s guidelines.
There will be many different rules that apply to each of the different types of expenses that property owners will incur. And as long as a property owner is not trying to claim more expenses than are valid. This will help them minimize the taxes that they have to pay at the end of the year.
This is especially beneficial, because according to the Fraser Institute. The average Canadian pays 43% of their overall income and a wide variety of taxes. Including GST, and fuel tax as well as income tax, CPP and EI.
To get an idea of how much money this is, to compare, 37% of the income that is left over goes towards a person’s basic necessities such as their rent or mortgage and food.
Therefore, many people will try to claim as many rental expenses as possible. But they need to keep in mind to be well within the guidelines set out by Canada revenue agency. Or risk facing an audit.
It may be necessary for a property owner to have to hire either a property manager, or maintenance personnel. Either to help manage their properties, or do maintenance. All of the money that they pay these managers or maintenance people can be claimed as a rental expense.
Whether this is a salary for ongoing work, or payment on a job by job basis. These are all valid fees that can be claimed. As long as the property owner is not charging for their own labour on the maintenance or management of their property.
And if they are employing these workers on an ongoing basis. Edmonton bookkeeping says they can even offer them benefits, and have the benefits become part as a rental expense.
When it comes to maintenance personnel, not only is there labour deductible. But so are they materials that they pay for minor repairs. Canada revenue agency classifies minor repairs as something that is not going to extend the overall life of the rental property.
However, doing repairs that will extend the life of the rental property will make it possible for them to print it for a longer period of time. But also, will get added to the value of their property. Which will increase its value. And add to the property owners overall assets.
And when it comes to repairs and maintenance. It is important for property owners to know that capital expenditures are not considered rental expenses. However they do get added to the value of the property as well. Which makes it very worthwhile for the property owner to do.
By keeping in mind a lot of the exceptions from Canada revenue agency. Can help property owners know exactly what expenses they can claim. And which ones they cannot claim. So that they can ensure that they do their personal taxes really every year.