Often, people and up with rental properties unintentionally says Edmonton bookkeeping. Such as they are moving, but cannot find a buyer for their former home. And end up renting it out in order to ensure that they do not lose money on their property.
This ends up with property owners wondering what they should put on their personal tax return for the rent they charged to those renters. And the first thing that they should learn when they have rental property. Is that rental income is considered personal income by Canada revenue agency.
This is true whether a person is renting out an entire home. Or if they are renting a room out of their house. However, there is a small exception to this rule says Edmonton bookkeeping. They property owner must ensure that they are charging rent for the space and no other services.
If they provide any additional services such as cleaning the home, or providing meals. Which is very common for people who are renting a room out of their home. This the longer is considered personal income. But Canada revenue agency considers it a business.
Therefore, people who have become property owners of rental spaces. Need to ensure that they are being very deliberate with not writing any other additional services. So that they can continue to claim this income personally.
If they are claiming this income personally. Then there are many expenses that they incur by maintaining this property. That can also be claimed on their personal tax return. This is very important, especially since the average Canadian pays 43% of their total income in taxes according to the Fraser Institute.
One of the first expenses that a rental property owner will incur is trying to find a renter for their space. And whether they have advertised online, in a newspaper or radio. Or if they have paid a broker either salary or finders fee. These expenses are deductible according to Edmonton bookkeeping.
The only exception that Canada revenue agency has on this. Is that they have to ensure that the advertising mediums that they use are Canadian. By doing this, they ensure that they can claim all that the expenses that they have incurred on their personal tax return.
The next expense that a property owner will likely have is insurance. And while this is definitely claimable is a rental expense. They need to be very careful that they are not accidentally claiming more than they should. Because there only entitled to the claim insurance premiums for the current year that there filing taxes for.
And many insurance policies cover multiple years. Making it important that they divide the overall policy by the number of years that it is. And only claim that amount each year as rental expenses.
Property taxes are also allowed to be claimed as a rental expense by Canada revenue agency. And if the property owner has been renting out their property for the full year. They can claim all of the property taxes as a rental expense.
However, if their property has only been available for rent for part of the year. They may only claim the taxes for the parts of the year that it has been available to be rented out.
Learning some of these rules and exceptions is very important for property owners. Because if they make a mistake, they might end up getting penalized by Canada revenue agency. Or worse, be facing an audit.
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Even if people have all the large number of rental properties says Edmonton bookkeeping. And this is how they earn their income. This is still considered a personal expense by Canada revenue agency. Which allows a wide variety of rental expenses to be claimed on their personal tax return.
Especially if a person has many rental properties. They may have maintenance personnel, superintendents, or property managers working for them. Canada revenue agency allows the salary or the wages of these workers to be claimed as a rental expense.
And if these employees are working for the property owner on an ongoing basis. They may even extend benefits for those workers. And the benefits can be considered a rental expense on their personal tax return.
However, if the property owner themselves provide labour for any reason. Whether it is for management, finding renters, or even doing repairs or maintenance themselves. Any time that they put into labour in the property. Is not considered an expense that they can claim on their personal taxes.
And when it comes to doing the maintenance or repairs. There are many things that is important to keep in mind says Edmonton bookkeeping. The first one being a property owner cannot claim capital expenditures as expenses.
Capital expenditures are things that a property owner would by area that is classified as a capital expenditure, if the useful life of that item is one year. Therefore, property owner might have to buy an appliance that stopped working such as a fridge, stove or dishwasher. Or they might have to replace a hot water tank, or furnace.
These would be considered capital expenditures, and not allowed to be claimed as a rental expense. However, Canada revenue agency says because it adds value to the rental property. It will get added to the property owners assets, increasing the value of the building.
The same goes for repairs and maintenance that extends the life of the rental properties. So a property owner can do whatever repairs and maintenance are needed. But if those repairs and maintenance adds value to the building, by extending its life.
That will not be claimed on their personal taxes, but continue to add value to the building, increasing the property owners overall assets.
A great example of this is a property owner can patch a hole in a leaky roof. And claim that as a rental expense. However if they replace the entire roof. That adds value to the building, and increases their overall assets.
There are many things to keep in mind when people own rental properties. And while they might be able to do their personal tax return properly themselves. Hiring and Edmonton bookkeeping company to do for them can often give them peace of mind they need to know it is being done properly.