Tax Advantages for Full-time, Part-Time and Self-Employed Landlords
Let’s face it: many self-managed landlords have other full-time jobs and run a rental property business as another income stream. Sumeet Sangha of Sangha Tone Chartered Accountants shares some insights on what tax advantages you can benefit from, depending on your situation.
Q: If I am a full-time employee with rental property income, what are my tax advantages?
A: If you own a rental property personally, the income is included on your personal tax return and added to your employment income. This may put you in a higher tax bracket resulting in higher marginal taxes on the rental income. You may want to consider joint ownership of the property to split the rental income between you and your spouse or another adult family member if he/she has no income or less income than you. The advantage of joint ownership is the flexibility to split income between the two owners. Consult with your accountant for advice on how best to proceed.
Another advantage is if you have rental losses, these losses can be applied to other income. If you own rental property that generates a loss this can reduce your taxable income from other sources and reduce taxes owing.
Q: If I am a full-time property manager, what are my tax advantages?
A: As a full-time property manager, you may be considered to be conducting a business or professional activity. This allows you to deduct expenses from your property management earnings, such as advertising, supplies, professional fees, wages for assistants, vehicle and travel expenses. You may also be able to claim home office expenses. In Canada, you will need to fill out a Statement of Business or Professional Activities (form T2125) to report this income.
Q: If I am a self-employed individual who owns another type of business and I receive rental property income, what tax advantages do I have?
A: Similar to the situation of a property manager, you will be able to claim expenses against your self-employment income using form T2125. If you receive rental property income you will be able to claim allowable deductions on form T776. The combination of the self-employment income and rental income will be included on your personal return and taxed at your marginal rate depending on the tax brackets you land in.
Seek advice from an accountant to ensure you can maximize the opportunities to reduce your taxes and structure your business in a way that will help your bottom line. A chartered accountant or your local tax authority are your best resource for the most accurate and updated rules and regulations.
As you prepare for tax season, use Pendo to simplify the process of tracking income and expenses. You can directly export your financial reports to Quickbooks, Xero or a CSV file – making life easy for you or your accountant.
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