Rental Property Tax Tips
What can be deducted?
Advertising
Insurance
Interest and bank charges
Professional fee (includes legal and accounting fees)
Management and administration
Repairs and maintenance (see below)
Property taxes
Travel (see below)
Utilities
Motor vehicle expenses (see below)
Prepaid expenses (accruals apply - i.e. the portion of the expense that is for the current year)
Important items to note regarding motor vehicle:
If you have one property which is located in the general area you live in, then you can deduct reasonable expenses if you meet all of the below:
you personally do part, or all, of the necessary repairs and maintenance on the property
you have motor vehicle expenses to transport tools and materials to the rental property
If you have more than one property (regardless of the location), in addition to the above, you can reasonable vehicle expenses to do any of the following:
Collect rents
Supervise repairs
Manage the properties
Deductible vehicle expenses:
fuel and oil cost
Maintenance and repairs
Insurance
License and registration
Eligible interest on money borrowed to buy a motor vehicle
Eligible leasing costs
Travel expense:
You can deduct travel expenses to collect rents, supervise repairs, and manage your properties. Same conditions as motor vehicle applies.
Repairs and maintenance:
Cannot: cost of labour and materials for minor repairs/maintenance; cost of your own labour; the repairs that are capital in nature (can claim capital cost allowance).
CANNOT DEDUCT:
Land transfer tax
Mortgage principal
Penalties
Value of your own labour
Personal portion of expenses
Current vs Capital
Current: those that reoccur after a short period (painting fences)
Capital: lasting benefit / advantage (changing windows)
Renovations and expenses that extend the useful life of the property or improve it beyond its original condition are capital expenses. See the criteria below:
Does it provide lasting benefit?
Does the expense maintain or improve the property?
Is the expense for a part of the property or for a separate asset?
What is the value of the expense?
Is the expense for repairs made to used property you acquired to put it in a suitable condition of use?
Is the expense for repairs made to an asset in order to sell it?
Class of depreciable property - Rental (note that land is not depreciable property)
Class 1 (4%): Most buildings acquired after 1987. Other exceptions such as eligible non-residential acquired after Mar 18, 2007 (add 6% to a total of 10%), and other eligible non-residential buildings (includes an additional 2%, to a total of 6%). You must file an election (i.e. send a letter to the CRA), otherwise base 4% rate apply.
Class 3 (5%): Most buildings acquired before 1988 are in class 3 or 6.
Class 6 (10%): if it is made of frame, log, stucco on frame, galvanized iron, or corrugated metal. In addition, one of the following conditions has to apply: 1) acquired before 1979, 2) income from farming or fishing, 3) no footing/base support below ground level.
Class 8 (20%): furniture, appliance, tools costing more than $500, and other items (outside sign, machines) that are not included in other classes. Also included are: fax machines, electronic telephone.
Class 10 (30%): Passenger vehicle. Also (not important and maybe not applicable) general-purpose electronic data processing equipment (computer hardware) and system software for that equipment, including ancillary data processing equipment, if acquired either A) before Mar 23, 2004, and B) after Mar 22, 2005, and made an election.
Class 10.1 (30%). Luxury vehicle (cost more than $30K or pay monthly lease of more than $800 per month). Eligible zero-emission are now included in Class 54 at a rate of 30%.
Class 12 (100%): Include in Class 12 with a CCA rate of 100% computer software that is not systems software. Software in Class 12 is subject to the half-year rule. Class 12 specifically excludes electronic communication devices and electronic data processing equipment.
Class 13
Class 14
Class 14.1 (5%)
Class 16 (40%)
Class 31 (5%)
Class 32 (10%)
Class 43.1 (30%)
Class 43.2 (50%)
Class 45 (45%)
Class 50 (55%): Include in Class 50 with a CCA rate of 55% property acquired after March 18, 2007, that is general-purpose electronic data processing equipment and systems software for that equipment, including ancillary data processing equipment.
Class 53 (50%)
Class 54 (30%)
Class 55 (40%)
Class 56 (30%)