People who own rental property, and collect rent is a way to supplement their income, or as a way to earn an income can claim that money as personal income according to Edmonton bookkeeping. Which ends up allowing property owners to claim many various expenses related to their rental properties. On their personal tax return.
However, they must ensure that they are following some rules in order to ensure this is considered personal income, and not a business. If property owners are charging additional fees for additional services, Canada revenue agency now considers this a business.
Additional services can be things like cleaning the house for an additional fee, mowing the lawn or shoveling the walk. Or even for people who are renting out a room in their home, made to charge additional fees to provide meals for their tenants.
If this is the case, property owners will need to fill out an additional form called a T2125 and file that with their personal tax return. To claim the income that they received from their tenants as a business income.
And while they can claim a lot of the expenses associated with that rental income. There are also a lot of exceptions to those expenses. That will need to be adhered to, in order to avoid making mistakes.
A great example of this, is that property owners can deduct their advertising costs on finding a tenant for their rental property. On their personal tax return. Whether that newspaper, radio, television, or even online advertising including social media.
However, the exception to this is that they must all be Canadian channels, looking for Canadian renters. If they start looking out of country, Canada revenue agency will not allow those expenses to be covered. Therefore, property owners should be very careful about ensuring that they are advertising in Canadian media.
Another great example of expenses that can be claimed, with some exceptions are office expenses. While property owners can claim expenses of their home-office, this excludes any capital expenditures. Canada revenue agency considers anything a capital expenditure that has a useful life of longer than one year.
So while property owners can claim things like pens and paper, posted nodes and staples. They would not be able to claim things like staplers, calculators or chairs.
This is where hiring an Edmonton bookkeeping company is very beneficial. Because they will know all of the expenses that they can claim. As well as the exceptions, so that property owners do not end up making mistakes.
Even the property taxes are an expense that can be claimed on personal tax returns. As long as they are claiming the property taxes only for the time periods where the property was available for rent.
If the property owner lived in the property for some of the year. Or if it was not available for rent due to maintenance. Those are exceptions that need to be adhered to.
Because this can be as very complex issue. Especially if a property owner has multiple properties. It is why they may wish to consult with an Edmonton bookkeeping company in order to file their personal tax attorney. So property owners do not end up making critical errors.
Property owners of rental locations may not realize the first year that they own rental properties, that they can claim that income as personal income says Edmonton bookkeeping. And as such, may not be keeping track of their expenses as diligently as they should.
Since rental income is considered personal income. A lot of the expenses that they incur. Can we claimed on their personal tax return. However, Canada revenue agency does have a lot of exceptions. That need to be adhered to.
Some of the largest exceptions that property owners will have is with repairs and maintenance of their rental property. While they can claim things like the cost of labour, and materials for making minor repairs. They cannot claim labour and materials of anything if it extends the life of the rental property.
A great example of this says Edmonton bookkeeping. Is they can patch a hole in the roof, but they could not put an entire new roof on the building. And then claim that new roof on their tax return for expenses.
However, if they do any repair and maintenance that does extend the life of the rental property. They can add that entire cost to the value of the building that they own. Which increases their overall assets. And is still worthwhile to do. They just need to be mindful of not claiming those expenses on their personal tax return.
Property owners also are not able to claim capital expenditures on repairs and maintenance. So if they have to replace appliances such as fridges, microwaves, dishwashers or washing machines and dryers. Those are considered capital costs.
However, they can use those new appliances to add to the value of the property that they own. Which does increase their assets. But they cannot be claimed as an expense on their personal tax return.
Another exception to the repairs and maintenance of the property. Is if the labour that is being provided is by the property owner themselves. They may not claim in their labour on their personal income tax as an expense.
The person that they hire to do the repairs and maintenance could be on salary, or an independent contractor. But as long as they are getting paid by the property owner. Their wages can be claimed as an expense.
If the worker or workers that a property manager hires. Our working for them on an ongoing basis, perhaps because they have a significant number of rental properties. Property owner can also deduct benefits that they have, on their personal tax return as well.
By knowing what expenses they can claim. And which ones Canada revenue agency will not allow. Can help ensure that property owners do not and of making mistakes on their personal tax return.
However, one surefire way to ensure that they do not make any critical errors. Would be to hire and Edmonton bookkeeping company to do their year-end tax return. Because they will know all of the expenses and all of the exceptions. So that no mistakes will be made.