Guide to Rental Property Tax Deductions in Canada
Have you ever heard the saying, “you need to spend money to make money”? Well, it’s true; you need to invest in your business before it starts generating any reasonable amount of profit. As a landlord, you need to treat each of your properties as a business. This means that you have to spend a bit of cash before marketing your properties.
Thankfully, you can get some of your hard-earned money back. If you own one or more rental properties in Canada, you’re able to write some of the related expenses. Doing this allows you to deduct a portion of said expenses from your annual taxable income.
Continue reading to learn what you need to write off in order to make the most out of your next tax deduction on rental property units in Canada.
Insurance premiums
There’s no denying that insurance can be expensive, especially if you have extensive coverage. Thankfully, rental property owners in Canada are able to write off their insurance premiums.
However, rental property owners should know that they can only write off one year’s worth of expenses. So, if your policy covers your rental property for five years, you can only deduct costs from the current fiscal year.
START A QUOTEWant to save on insurance?
Writing off your premium is a great way to save on insurance, but it isn’t the only way. If you feel like you’re overpaying for insurance in Canada, you should reach out to a Surex insurance advisor.
At Surex, our advisors take their jobs seriously — so, when you ask for insurance quotes, expect to receive the cheapest, most competitive options on the market.
Maintenance
If you paid to have any aspect of your rental property repaired, replaced or maintained, you can write off the related expenses.
Landlords should know that they cannot write off the value of their labour.
Here’s a brief example:
Imagine that you needed to replace the doorbell at one of your rental properties. You could write off expenses related to the replacement (parts, shipping of parts, tools, etc.), but you can’t put a monetary value on the time that you spent on the replacement.
Employee and contractor expenses
Sometimes, you can’t do everything by yourself, which is ok. If your rental property is starting to feel like an overwhelming responsibility, it may be time to hire an employee or find a reliable contractor.
Rental property owners can deduct employee and contractor-related expenses. These expenses include the wages of:
- Full-time employees
- Part-time employees
- Contract employees
Once again, landlords cannot write off their labour. With this in mind, you can see why many landlords opt for third-party labourers and employees.
Property taxes
When it comes to filing a vacant rental property tax deduction Canada has a handful of requirements that need to be met.
Although rental property owners aren’t able to deduct the lump sum of their annual property tax, they can deduct a portion of it if the property is (or was) vacant.
For instance, if your rental property was vacant for three months, you would be able to deduct three months’ worth of your property taxes on the building and the land that the building is built on.
So, how much does this amount to? Well, if you paid the average amount for property tax in Ontario (approximately $2,281), you’d be able to deduct $570.25 from the rental income that you generated.
Although this may not make up for the lack of income, it is a beneficial silver lining.
Travel expenses
Do you need to travel a lengthy distance in order to visit your rental property? If so, you can deduct some of these expenses from your annual income.
As a rental property owner, you can deduct the following travel expenses related to the following situations and tasks:
- Collecting rental from a tenant
- Supervising a repair or replacement
- Managing a task at the rental property
However, you should be aware that you cannot deduct expenses related to board or lodging (a term referring to food and shelter).
Here’s a simple example:
You recently spent $40 on fuel while travelling to your rental property in order to supervise an urgent repair. After a long day of work, you decide to spend the night in a hotel and order room service, which comes out to about $150.
In this situation, you would be able to deduct the $40 that you spent on fuel, but you wouldn’t be able to write off the $150 that you paid for board and lodging.
Utilities
If you cover the cost of the utilities in your rental property, you are able to deduct the expenses from your taxable income.
Some examples of the utilities you can write off include the following:
- Gas
- Electricity
- Hydro
- Cable
- Internet
However, in order to be able to write these expenses off, your landlord-tenant contract must clearly state that you are responsible for covering the listed utilities. Any utility that your tenant pays for cannot be written off.
Advertising and marketing expenses
Finding a tenant can be difficult, especially if your rental property is in a town or city that is oversaturated with competition. In order to stand out, many landlords will advertise their properties in local newspapers, radio stations or websites.
Although these advertisements come at a cost, you can get peace of mind knowing that you can deduct these expenses from your annual taxable income.
Bonus tip — Finder’s fee
If you paid a finder’s fee, you’d be happy to know that you can deduct this from your annual taxable income as well. This is relieving, as finder’s fees range immensely (generally 3% to 35% of the sale).
What have you learned about rental property deductions Canada?
As we mentioned at the beginning of the article, “you have to spend money to make money,” and rental properties are no exception. Thankfully, if you play your cards right, you’re able to get some of your hard-earned money back.
However, you should be aware that this isn’t a complete list; if you’d like to learn more about what expenses you can and cannot deduct from your taxable income, don’t hesitate to reach out to your accountant.
