All income associated with rental properties must be reported on your income tax return. This will include rental income from each unit, but may also include items such as common area maintenance, parking space rentals, or use of laundry facilities income.
In general terms, any expenses incurred to earn the rental income are deductible for tax purposes. If your tenant reimburses you for these costs, you either have to report the receipt as income or reduce the expense by the reimbursement. These expenses must be supported by receipts. Although the receipts are not required to be filed with your tax returns, you must keep them in case Canada Customs and Revenue Agency selects your tax return for an audit. The following are some of the expenses you should consider when preparing the rental property income tax information:
Most banks provide an annual mortgage statement. If your bank does not provide an annual statement, you need the terms of the mortgage in order that an amortization schedule can be prepared for the period these terms apply to.
The total property taxes for the year are on your Final Property Tax bill. If you pay your property taxes with you mortgage, the annual mortgage statement may also provide this information.
Utilities, which you pay for the rental property, can also be deducted. These include hydro, gas, and water.
Insurance premiums for the property insurance are deductible. Life insurance is also deductible if required for financing for the rental property.
These include any repairs and maintenance done on the rental property such as landscaping costs, painting, or cleaning services. Larger repairs such as replacing the roof or the windows are also deductible.
If you are paying a management agent to take care of your property for you, then these fees are deductible. These would also include condo fees.
Although these are not required to earn the rental income, they are however necessary administrative functions and are therefore also deductible. These include bookkeeping costs and cost of preparing your rental statement for income tax purposes and also legal fees incurred in collections of delinquent accounts.
Vehicle expenses incurred for the purpose of the rental property can also be deducted. This may involve traveling to and from the rental property or to do miscellaneous errands such as purchasing supplies. However, you must be careful to exclude any personal portion of the vehicle expenses. If you are using the vehicle for other purposes, you must keep proper records of the kilometers driven for the rental property. This can be accomplished by keeping a log noting the date, purpose and number of kilometers driven.
Other expenditures, which you may incur include telephone, cable and advertising costs.
This is allowable portion of the cost of capital items, such as the building itself, equipment, etc that can be claimed each year. The maximum rates are specified in the income tax act. This deduction can not be claimed if there is a rental loss for the year. CCA can only be claimed to bring income to nil.
Circumstances arise when it is not possible to obtain accurate records for the expenditures. In such situations, you can estimate the expenses. However, you must be careful to ensure that your basis for the estimates and the amounts are reasonable and can be justified to an auditor.