Before a person can even start to consider claiming rental expenses on their personal taxes according to Edmonton bookkeeping. They need to know if they can claim their rental income as personal income in the first place.
While people can claim rental income as personal income. Whether they own one property, many properties. Or even if they are renting out one room in their home. They have to ensure that all they are charging for is rent alone. Or rent and utilities in order to be considered personal income.
For example, if a person starts charging additional services with the rent. Such as mowing the lawn in the summer and shoveling the walk in the winter. Or cleaning the house, or providing meals. Which is especially likely to be the case when a person is renting out just a room.
Then Canada revenue agency will most likely consider that to be business income instead of personal income. Which will require a property owner to claim that as a sole proprietor. Or simply fill out a specific form called a T2125 to file with their personal taxes.
Once a person has figured out that yes, they can claim their rental income as personal income. The next thing that they can start figuring out according to Edmonton bookkeeping. Is what rental expenses they incurred. That they will now be able to claim on their personal tax return.
While there is a wide variety of expenses that people will be able to claim on their personal taxes. That they incurred from their rental property. From advertising for a renter, management, admin or maintenance fees, office expenses, insurance and property taxes just to name a few.
There are exceptions on almost every expense that they can claim. Making it not quite so clear to understand as many people think.
In fact, many homeowners find it very frustrating and complicated to try to learn all of the exceptions. Which is why they simply hire and Edmonton bookkeeping company to do their personal tax return at the end of the year. So that they do not have to risk making a costly mistake.
For example, many people want to know if they can claim the utilities on their property. As an expense on their personal tax return. They can, but it is dependent on a large number of factors.
For example, the rental agreement must specify that the property owner will be paying for those expenses. In order for them to claim those on their personal taxes.
So if they do not specify this in their rental agreement. Or if the renter pays for their own utilities. The property owner can not claim these expenses on their personal tax return.
The same rules apply to someone who is renting out a room in their house. But they also need to ensure that they are only charging for a percentage of the utilities. Such as a third of all of the utility expenses, or a quarter of all of the utility expenses. But never over 50%. Because that will cause the homeowner to lose their principal deduction.
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Many people want to try to claim as many rental expenses as they can on their personal taxes says Edmonton bookkeeping. So that they can minimize whatever taxes they can.
Because according to the Fraser Institute, the average Canadian pays 43% of their entire income in a variety of taxes. some of the taxes that they pay can include things like income taxes, CPP and EI, as well as GST, PST, fuel and carbon taxes just to name a few.
By comparison, they discovered that the remaining amount of taxes, 57%, only 37% of that remaining income. Those towards the taxpayers basic necessities such as food and shelter.
Therefore, attacks. Doing whatever they can to minimize their taxes is very understandable. However, when property owners are claiming their expenses from renting their property. They may need to understand the vast array of exceptions that need to be applied to those expenses.
For example, property owners can deduct their own office expenses. But only on things that are not considered capital expenditures. But Canada revenue agency considers capital expenditures. Is anything that is going to last longer than a year.
Therefore, a property owner will be able to claim things such as pens, paper and Staples. Things that will not be deductible. Include the stapler to staple those staples. A calculator, printer, or their chair and desk.
When it comes to maintaining the property. There is an maintenance can be a deductible expense says Edmonton bookkeeping. As long as there is no capital expenditures. And that the repairs and maintenance that they are doing are not extending the life of the property.
So what that means, is a property owner can patch a hole in a roof, and that can be a claim a bull expense. But not replace the entire roof itself. They can paint the house, and claim that as an expense. But if they add new siding to the house, that is considered a capital expenditure and not valid.
Even if a person needs to buy a new appliance. Because the appliance that they had in the rental property stopped working. That is also considered a capital expenditure. And is not considered an expense can be claimed.
However, property owners need to keep in mind that just because they cannot claim it as an expense. But they can do, is added onto the entire value of their property. If they have done something that extends the life of their property. Or has added value to the building. Therefore, new roofs, siding and appliances. Can fit under this description.
With the vast number of exceptions that there are in rental expenses that can be claimed. Many property owners simply hire and Edmonton bookkeeping company. To do their tax return for them, so that they do not have to worry about making a mistake.