Date Posted: August 1, 2019
Recent figures released from Stats Canada has found that for certain Canadian cities and types of properties, a growing number of owners are making the leap to become landlords themselves.
Considering a rental property, or properties, for your own financial portfolio? There are some major factors to consider when looking at the tax implications.
A common misunderstanding is that all rental property debt interest is tax deductible. The use of the borrowed funds will dictate if this is the case. If you refinance a rental property and use the funds for personal use, the interest on the additional debt is no longer tax deductible. Similarly, if you refinance your principal residence to use towards the purchase of a rental property, that portion of debt is now tax deductible against the rental property even if the loan is not secured to the property.
“Commonly missed deductions for rental property investors include accounting fees, which are not generally tax deductible on most personal tax returns. Travel expenses can also be deducted. According to the Canada Revenue Agency (CRA), “You can deduct travel expenses you incur to collect rents, supervise repairs, and manage your properties. Travelling expenses include the cost of getting to your rental property, but do not include board and lodging.”
Often, owners blur the lines between capital and current expenses when looking for additional tax deductions. “The CRA distinguishes between current and capital expenses. A current expense is a tax deductible expense that is generally a modest cost that reoccurs frequently, restores a property to its original condition, or is a replacement that is part of the ordinary maintenance of a property. Capital expenses tend to have a more lasting nature and improve a property beyond its original condition. Generally, if the expense is considerable relative to the value of the property or might otherwise be considered a “renovation,” the expense may not be tax deductible. Replacing a separate asset within a property — like an appliance — is considered a capital expense.”
Working with a professional team of Mortgage Brokers, Real Estate Agents, Financial Planners, and Tax Professionals can help ensure you’re investing your time wisely and your investments are working to your advantage.