Own a rental property? Here’s your list of expenses you can and cannot deduct
When you own a rental property, current expenses, or those “recurring expenses that provide a short-term benefit”, can be deducted from your gross rental income in the year you incur them. Because they provide a short-term benefit, you don’t have to write down their cost over a period of years through claiming Capital Cost Allowance as you do with capital expenses.
I think of them as the straightforward expenses; you keep your receipts and when the time comes, fill in the correct amount of your costs on the appropriate lines of your Statement of Real Estate Rentals that comes with your T1 income tax package.
As always, there are a few things you need to be aware of first.
You can only claim expenses that relate to the rented part of a building. So for instance, if you are renting out a room in your house, you can only claim the expenses for that portion of your house. You have to split the cost of your expenses into a rental and a personal portion. The personal portion amount of the expense that you are claiming gets entered into the Personal Portion column on the Statement of Real Estate Rentals.
You can calculate the portion of expenses by figuring out the percentage of your property’s square metres you are renting out, or estimate it according to the number of rooms in your house.
The Canada Revenue Agency leaves the method of your calculation up to you “as long as the split is reasonable.”
For example, suppose you owned a 1,220 square metre duplex and you lived in one side and rented the other. Assuming both units were the same size, you would be able to deduct one hundred percent of your expenses directly related to your rental unit such as repairs, but only fifty percent of your expenses relating to the entire unit, such as the cost of insurance.
Note though, that all this is moot if you have no expectation of making a profit. If you don’t, you cannot claim expenses for renting out part of your property.
You also need to be aware that you can only deduct current expenses that relate to the current tax year. So even if you have paid in advance for two years of insurance for instance, you can only claim the cost of the insurance for the current tax year. (You’ll be able to deduct the remaining premiums in the tax year they apply to.)
List of Current Expenses for Your Rental Property
All right then. What can you actually claim?
- Advertising your rental property
- Interest on money you borrow to buy or improve your rental property. If this relates to the construction or renovation period of your rental property, see the soft cost rules.
- Interest you paid to tenants on rental deposits
- Fees you incur when you get a mortgage or loan to buy or improve your rental property such as:
- mortgage applications, appraisals, processing, and insurance fees
- mortgage guarantee fees
- mortgage brokerage and finder’s fees
- legal fees related to mortgage financing
- The cost of office supplies (pens, paper, etc.)
- Legal fees for preparing leases or collecting overdue rents
- Fees for bookkeeping services, record audits and preparing financial statements
- Fees for income tax form preparation and advice
- Property management fees
- Fees for property repairs. (Note that you can only claim fees you have actually paid out; you can’t deduct the value of your own labour)
- Salaries, wages and benefits for those you employ to take care of your rental property. (Once again, only those to others; you can’t deduct the value of your own services.) See Guide T4001, Employer’s Guide – Payroll Deductions and Remittancesfor more information
- Property taxes
- The cost of travelling to your rental property to manage it (but not the cost of board and lodging, which the Canada Revenue Agency sees as personal expenses). This is separate from motor vehicle expenses (see below)
- The cost of utilities (gas, electricity, water etc.) if you pay for them according to your rental agreement
- Motor vehicle expenses – but only if you meet all three of these conditions:
- you receive income from only one rental property that is in the general area where you live
- 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
- Lease cancellation payments. Divide the number of days left on the lease into the number of days to the end of the year when payment is made for cancellation payments made in the current tax year. The T4036 – Rental Income Guide from the CRA provides examples of how to do this.
Important Note: you cannot deduct motor vehicle expenses related to collecting rents unless you own two or more rental properties.
Current Expenses You Can’t Deduct
- Mortgage or loan payments
- Land transfer taxes paid when you bought your rental property
- Tax penalties
- The value of your labour