What to do

INCOME

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

› Income from property: Your client provides rental space and basic services, such as heat, light, parking or laundry.

› Income from business: Your client also provides 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 your client is 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.

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a Enter your client’s gross rental income on Line 8299 of T776 and Line 160 of her 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.

Client’s shouldn’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 client’s 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.

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2. If your client qualifies, claim the GST/HST New Residential Rental Property Rebate. (See “Save landlords sales tax,” below.)

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

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

c If your client buys a building, she has two years from the month the property becomes taxable to file for a rebate. If she builds it, she has 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 client’s income and expenses. CRA expects her to keep invoices, receipts, contracts and other supporting documents for six years.

LOSSES

If your client loses money on her 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.

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

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

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