Many people who have purchased a rental property for the first time might not know that the income they get from renting their property is considered personal income says Edmonton bookkeeping. They might think that it is considered a business. And that they need to file their taxes as a sole proprietor. Or that they need to incorporate as a business.
However, Canada revenue agency can allow people who own rental properties. To claim the income they receive from renting those properties out. As personal income regardless of how many properties they might own. Even if they keep a staff, that are charged with managing or doing maintenance on the properties. This is still considered personal income.
Therefore, Edmonton bookkeeping says a wide variety of expenses that they incur maintaining these properties. Our deductible expenses that can be claimed on a person’s personal tax return.
However, Canada revenue agency also has a large number of expenses that they consider not valid rental expenses. And should not be claimed on a property owners personal tax return. Otherwise they might risk getting penalized or getting an audit done.
If they do have staff that help them manage these properties. Such as a property manager, or maintenance personnel. The wages or salary that they pay these can be considered rental expenses. If the people that are working for property owner work on an ongoing basis. They can even give these employees benefits, which can also be considered a rental expense.
However, it is very important that the property owner does not claim any labour for themselves. If they do any work on the rental properties themselves. Whether it is management, collecting rents, finding renters. Even if they are doing repairs and maintenance on the property.
However, if the property owner has had to travel back-and-forth to that property, were to multiple properties. Can I revenue agency will allow them to claim their travel expenses up to and including mileage and cost of fuel.
Unfortunately, meals and accommodations are not valid expenses that can be claimed. Even if the properties are hundreds of miles apart. Therefore, property owners should be well aware of this before submitting receipts. So that they do not end up claiming significantly more expenses than they are able to.
When it comes to doing the maintenance on the property. The materials and even labour can be rental expenses. But not include capital expenditures. This means, that a property owner may purchase the supplies to patch a hole in the roof, paint the interior or exterior of the property. And have all of these expenses be allowed to be claimed.
However, if they need to buy a new furnace, hot water tank or even fridge or stove. Because they have stopped working. Canada revenue agency considers these to be capital costs. And while they cannot be claimed as a rental expense. They can be added to the overall value of the property. Raising the property owners overall assets.
This can be slightly confusing if people do not know what makes something a capital expenditure. Therefore, it is often most beneficial for property owners to employee Edmonton bookkeeping to do their personal tax return on their behalf. So that they can avoid making mistakes.
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Many property owners may not initially realize that all rental income that they earn says Edmonton bookkeeping. Is personal income. And they can own as many rental properties as they like and have it be considered personal income and not business income.
However, the exception that Canada revenue agency has to this is that they cannot be providing any additional services other than just rent. Therefore, if they are providing services such as housecleaning, landscaping or snow removal. And even meals, particularly if they are renting out a room in their home.
Doing those additional services is going to be what makes their rental income be considered business income by Canada revenue agency. And while people may feel free to charge additional services for additional money. They do not necessarily have to start filing their tax return as a sole proprietor.
However, they do have to claim that income differently. By filling out a form called a T2125 and filing it with their personal tax return. If they are unaware of this. They could face penalties from Canada revenue agency that could be more costly than the taxes they are trying to save themselves.
However, many people think that they cannot include the utilities as part of the rent without that being considered additional services but this is not true says Edmonton bookkeeping.
People can include utilities and the cost of rent. And then claim the utilities as rental expenses. As long as there rental agreement specifies that the property owner will pay for the utilities.
If people are renting out a room or two in their home. They can also specify in their rental agreement that the owner will pay for the utilities. And allow them to claim the utilities as rental expenses on their personal income tax.
However, for people who are claiming utilities for renting out a room in their home. They need to only claim a percentage of their utilities. And ensure that that percentage is under 50%. Or else, they will lose their principal deduction on their income tax.
People might even need to incur expenses in order to find a renter. And while advertising expenses are deductible. Canada revenue agency specifies that the advertising must be done with Canadian companies through Canadian channels.
Therefore, people need to be very careful who they advertise with. Because they might end up advertising with Canadian company online. That makes that expense invalid.
By learning all of the expenses that they can claim. And then learning what exceptions Canada revenue agency has to those expenses. Can help ensure that people are not making errors on their personal taxes.
Or, hire an Edmonton bookkeeping company to take care of their taxes on their behalf. So that they can completely avoid making mistakes. And know that they will not get penalized or audited by Canada revenue agency