Canadian Rental Income Tax: Rules on Write Offs (Part 1)

One of the most common questions self-managing landlords will have around tax time is “what expenses can I write off?” To help Canadian landlords navigate around taxation, we interviewed Sumeet Sangha of Sangha Tone Chartered Accountants who specializes in real estate rental property to answer some commonly asked questions about taxes.

Q: As a self-managed landlord, what form do I fill out to claim taxes?

A: In Canada, you are required to file a Statement of Real Estate Earnings (Form T776) for each rental property you own personally. This form summarizes your rental revenues and deductions to calculate the taxable income to be included on your personal tax return.

Q: Do I have to file my taxes using two separate forms?

A: Yes, if you own rental property you need to attach a Statement of Real Estate Earnings (Form T776)  to your personal tax return to report your rental income and if you also have income from managing properties you may also have to attach a Statement of Business or Professional Activities (Form T2125) to summarize your property management income.

Q: What tax-deductible expenses are most commonly missed and what happens if you miss them?

A: There are quite a few, most clients know to track repairs and maintenance, property taxes, mortgage interest, insurance and any utility costs they incur. A landlord can also deduct any advertising costs, management fees, certain vehicle expenses, professional fees and office expenses. It’s a pretty comprehensive list and some landlords leave deductions on the table when they file their returns since it is difficult to track everything throughout the year. It’s always advisable to contact your accountant upfront so they have a better understanding of what is deductible and what to track for the year.

Q: What is the rule around writing off mileage expense when using a vehicle to travel to and from your property location?

A: If you own one property you can only deduct vehicle expenses if you personally do part, or all, necessary repairs and maintenance or have incurred vehicle costs to transport tools and materials to the rental property. If you own only one property you cannot claim vehicle expenses incurred when you drive to collect rents as this is considered a personal expense.

If you own more than one property you can deduct the vehicle expenses incurred to collect rents, supervise repairs and generally manage the properties in addition to the expenses incurred as if you owned only one property.

To calculate the allowable vehicle expenses you will need to add up the kilometers driven as eligible per the above criteria divided by the total kilometers driven for the year to determine the eligible percentage of vehicle costs. A vehicle log needs to be kept to support these amounts. The following vehicle costs can be deducted:

– License and registration fees

– Fuel and oil costs

– Insurance

– Interest on money borrowed to buy a vehicle

– Maintenance and repairs

– Leasing costs

– Capital Cost Allowance (CCA) or depreciation

Q: How do I treat depreciation on vehicle?

A: You can claim a Capital Cost Allowance (CCA) deduction on depreciable property such as a vehicle. The CCA is calculated using a depreciation rate set by the CRA based on the class of asset. A maximum of $30,000 in original cost of the vehicle before considering PST and GST can be depreciated over the life of the asset and a rate of 30% each year is used to calculate the CCA allowable on a declining balance basis.

Get more tips and advice on your tax return including business use of home expenses that you can claim in Part 2 of Canadian TaxTips on Rental Income: Rules on Write Offs.

Disclaimer: consult a chartered accountant or your local tax authority for the most accurate and updated rules and regulations.