What to do

INCOME

1. Determine whether your income is from property or from a business.

› Income from property: You provide rental space and basic services, such as heat, light, parking or laundry.

› Income from business: You also provide services, such as cleaning, security or meals. “The more services you provide, the greater the chance that your rental operation is a business,” says CRA.

TIP:

If you’re operating a business, use form T2125, Statement of Business or Professional Activities . (For more, see What to do when clients raise money online.)

Typically, rental income is from property. If this is the case, complete form T776, Statement of Real Estate Rentals.

a Enter your gross rental income on Line 8299 of T776 and Line 160 of your return.

CRA says income includes goods-in-kind and services, such as a renter replacing a broken toilet. Calculate the fair market value of the good or service and include it in income, says Greg Weiler, tax partner at BDO Canada LLP in Kitchener-Waterloo, Ont.

b Deduct expenses, including maintenance and repairs, insurance, property tax and utilities on Lines 8521 to 9270.

Don’t list items like a new roof, heating system or a remodelled kitchen as a maintenance expense, says Weiler. If something extends the life of the property, it’s a capital expense, he says.

c Calculate your undepreciated capital cost using Area A of T776.

d Enter net rental income from T776’s Line 9946 on Line 126 of the return.

RENOVATIONS

1. Renovating an older building is a capital cost, says CRA. Capital costs include:

› purchase price;

› professional accounting, legal, engineering and construction fees;

› improvements and additions to the property; and

› loan interest, accounting fees and property taxes from the time the building is under construction.

a Add the purchase price of the property and the expenses incurred to renovate in Area C of form T776, and enter the total on Line 9927.

b Enter the total from Line 9927 in Column Three of Area A.

2. If you qualify, claim the GST/HST New

Residential Rental Property Rebate. (See “Save sales tax,” below.)

a Complete form GST 524 GST/HST New Residential Rental Property Rebate Application.

b Submit copies of your purchase agreement, statement of adjustments, and rental or lease agreements.

c If you buy a building, you have two years from the month the property becomes taxable to file for a rebate. If you build it, you have two years after from the month construction is completed to file.

d If the building has multiple apartments, also complete form GST 525 Supplement to the New Residential Rental Property Rebate Application – Co-op and Multiple Units.

TIP:

Record your income and expenses. CRA expects you to keep invoices, receipts, contracts and other supporting documents for six years.

LOSSES

You lose money on the property, such as from uncollectable rent, deduct it from gross rental income. To be eligible, the debt must:

› be owing at the end of the tax year; and

› have become uncollectable during the tax year; and

› have been included or deemed to have been included in your income for the year or a previous tax year.

a CRA requires proof of the debt, such as a notice to creditors, or a letter from the tenant.

b List losses on Line 9945 of T776.

You can’t claim a rental loss if you’re renting property at a rate below fair market value to a non-arm’s-length party, says CRA. If you claim losses every year, CRA may reassess your return, says Weiler. The agency may conclude that you’re not operating the rental as a true business.

Sources: CRA; Greg Weiler, tax partner at BDO Canada LLP in Kitchener-Waterloo, Ont.

Save sales tax

You’re eligible for the GST/HST New Residential Rental Property Rebate if you:

› purchased or built a new residential rental property;

› substantially renovated a residential rental property;

› expanded a multi-unit rental property;

› converted a commercial property into a residential rental property; or

› leased land for residential purposes.

Each rental unit must have a fair market value of less than $450,000, says CRA.

Source: CRA