This is one of the first questions that Edmonton bookkeeping gets from people who purchase their first rental property. Whether they have purchased it so that they can earn more income for themselves. Or if they have been unable to sell a previous home. There are many reasons why people might end up with properties that they are renting out.
Canada revenue agency considers rental income personal income. As long as the property owner is not providing services in addition to rent.
Additional services could be considered things like housecleaning, landscaping or snow removal. Or, most commonly meals if a person is renting out a room in their home.
Therefore, if people are claiming their rental income on their personal tax return. Edmonton bookkeeping says this means they can claim rental expenses that they incur on their personal taxes as well.
However, there are many exceptions that they need to adhere to. To ensure that they are not claiming more expenses than they are entitled. Because that could cause them to face fines or an audit from Canada revenue agency.
The first expense that many people incur is finding a renter for their property. And whether they do the advertising themselves. Or hire a company or broker individually. These expenses are deductible. As long as they are advertising in Canadian channels.
And whether it is the cost of the advertising itself, whether in a newspaper, on the radio or online. Or if this means they pay a wage or finders fee to a broker. This is all deductible expenses.
The next most common expense that people have when they buy their first rental property. Is insurance. And while the insurance is deductible. Edmonton bookkeeping says people need to be very careful not to claim more premiums than they intend.
Because many insurance policies are for multiple years. And they can only claim premiums for the current year that they are filing for. Therefore, they may have to divide their policy by how many years covers. And ensure that they claim only that amount. But then remember to carry that amount forward into the future to continue to claim their insurance year after year.
Even the property taxes can be deducted as a rental expense. However, if the property has not been available to be rented for the entire year. They can only claim a percentage of the property taxes for the percentage of the year that it has been available.
A person might even need to travel back-and-forth to their rental property. Especially if they have purchased a home in another city. But still maintain the previous home to be able to rented out. Which means they might incur travel expenses.
And while these travel expenses are able to be claimed as rental expenses. Only the mileage and the cost of fuel can be claimed. Even if they needed to purchase meals or stay in accommodations. Those expenses are not valid.
It can be a lot of information for people to keep in mind when they have purchased their first rental property. And while they may be able to do their personal tax return themselves. It is often in their best interest to hire and Edmonton bookkeeping company to take care of that for a property owner. So they do not end up making costly mistakes.
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It is very important that people claim as many expenses on their personal tax turn as they can says Edmonton bookkeeping. Because according to the Fraser Institute, the typical Canadian pays 43% of their entire income in a variety of taxes.
While these taxes can include things such as income tax, CPP and EI. They also include taxes such as fuel tax and GST. In comparison, 37% of the income that they have left over goes towards their basic necessities like rent or mortgage and food.
Therefore, many people try to reduce the amount of taxes that they owe by claiming as many personal expenses as is allowed by Canada revenue agency. If people own rental properties. There is a wide variety of rental expenses that can be claimed.
However, there is also a large number of exceptions that Canada revenue agency has on these expenses. A property owner may want to ask Edmonton bookkeeping’s them questions so that they can understand what exceptions there are.
One of the first questions that Edmonton bookkeeping will get from property owners is if they can claim office expenses. While Canada revenue agency allows property owners to claim office expenses. It excludes capital expenditures. Which they define as anything that has a useful life longer than a year.
Therefore, post it notes, pins, paper or Staples can be claimed as an office expense. Things such as the stapler, calculator, chair or filing cabinet would not be considered an office expense that can be claimed.
The same kind of exception happens with repairs and maintenance as well. While people can do repairs and maintenance on their rental properties. If there is anything that they have purchased that is considered a capital expenditure. This cannot be claimed.
For example, a property owner might need to buy a new fridge, stove or dishwasher because the one at their rental property broke. Or, they might needs to buy a new furnace or hot water tank. And while they must replace these things. They cannot claim them as a rental expense.
However, they can increase the value of their property by purchasing these things. Which will increase the property owners overall assets. Giving them tax benefit of those purchases. And while they are a tax benefit. They will not be considered a valid rental expense by Canada revenue agency.
By knowing what expenses are valid. And what expenses are not allowed by Canada revenue agency. Can help ensure that property owners are avoiding making big mistakes on their personal tax return.
However, the best way to minimize their risk. Is simply to hire and Edmonton bookkeeping company to do their personal tax return on behalf of the property owner. So that they can definitely avoid making costly mistakes. That could cost them more money than they are saving.