How to Prepare Tax Returns For Rental Properties in Canada Watch Video
Allan Madan, CPA, CA
Do you own a rental real estate property? Filing a tax return for an income property Read More…
Disclaimer
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.
ABOUT THE AUTHOR
ALLAN MADAN
CPA, CA
Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.
When completing my T776 my Net Income shows a Loss on line 9946. However, I did a major renovation to my basement unit to make it a self contained rental, should I still complete Area A & B so I can claim my CCA for the next year?
Hi Dan,
Yes you should. The major renovation should be addition to your building which is CCA class 1.
Thank you,
– Allan and his team
I rented my summer cottage for the first time last year for three months. Can I claim utility expenses for the whole year or only the months it was rented?
Hi Gwen,
For tax purposes, your cottage expense must be prorated for the period in which you rented the property out. Therefore, you will be able to claim the utility expenses for three months.
Thank you,
– Allan and his team
Shouldn’t we considered that the purpose or intension of the summer cottage is for renting only in summer time , but the cottage has to be used electricity or heat source in cold season to keep the property to avoid freezing and damage?
I have to drive approximately 200 km round trip to my rental property. Can I expense the mileage if I drive there once a month to check up on the house? Would that be at $0.42/km?
Hi Heather,
You can only claim the expense if you travelled for repairs and maintenance of the rental property (ie. not for collecting rent). Therefore, as long as you can justify that you travelled to repair or maintain the property, you will be able to claim your auto expense.
Thanks,
– Allan and his team
I was wondering if the hot water tank and washer/dryer blew up during the rental year are those current/common expense or capital expenses.
Hi,
If you previously capitalized your washer/dryer and water tank then you can write-off the capitalized assets if they have no longer have value.
-Allan and his team.
Hi there,
I currently own an income property, one building divided into 3 apartments. I live in one unit and rent out the other units. Am I able to claim 2/3 of housing expenses for tax purposes or should I only claim half of my housing costs as this is my principal residence.
I have heard different answers from different accountants.
Thanks,
Hi Tiny,
If you are referring to claiming rental expenses on Form 776, then only the expenses relating to the portion of your property rented out should be deducted. This means that if you are renting out 2 of the 3 units out, you should be able to claim 2/3 of the property expenses (i.e. utilities, property taxes) as rental expenses.
Hope you find this helpful and thank you for your question.
Allan and his team
I have been renting a rental condo unit since June last year. I am struggling completing T776 E form. Please help me to understand the following.
Property Location: Saskatoon, SK
Property Details: Built in 1968, completely renovated in 2008 (exterior/interior) with brand new appliances.
Property Status: Purchased in 2009, lived there until May 31, 2012 and rented since June 1, 2012.
Rental aggrement: includes all six new appliances
T776 E form (page 1):
– We (I and my wife) bought he unit. Do I need to fill the section “Details of other co-owners and partners”?
– We are not clear about the items (Share of net income (loss) as well as % of ownership) as there was not clear borderline of our % ownerships.
– Expenses: can I include the replacement of washer (appliances) under maintenance and repairs 8960?
– Can I charge the appraisal fees I paid when I purchased the unit in 2009 under 8860? I will also add two more items such as lawer’s legal fees and land title tranfer fees under this question.
– There is condo fees. Should I include it under Other Expenses 9270?
-Co-ownership heavily confused me to complete the form. If I need to include my wife as a co-owner, how should I complete 9936, 9945, 9947, and 9948?
T776 E form (page 2):
Here is the details for this page.
Replacement of washer after renting= $x
Purchase price=$y
Legal (lawyer’s) fees=$z
property title (land) transfer fees= $m
How to fill AREA A, AREA B, and AREA C?
Are AREA D and AREA E applicable in my case?
I think AREA F is NOT application in my case. Please confirm.
Your help is greatly appreciated.
Best regards,
Hi Bibek,
Thank you for sending in your question.
As you are using a different software from us, we cannot give you specific instructions on how to fill them out. But for general guidance on the situation, please see answer to some of your questions below:
– If you and wife both invested into the property and are on the deed, then the rental income and expenses can be allocated 50:50 on your tax returns. Hence, you need to include your wife as a 50% c-owner.
– The start date of rental is June 1, 2012. You can generally only report expenses that occur during the rental period. If the expense occurred before the renting started but the expense was related to rental preparation, then it may be claimed on the tax return.
– Hence, based on the information above, if you replaced washer during the rental period or before for rental prep. purposes, you may be able to capitalize the appliance and claim depreciation.
– The expenses incurred when purchasing the property (i.e. legal fees) in 2009 cannot be deducted on the tax return.
Regards,
Allan and his team
I bought a bungalow in 2006 with the intention to house my in-laws and later my kids. It rested un-occupied until 2011 when I started to rent it, but I did not claim any CCA last year.
I will retire in 10 years and I will probably rent the house until that time.
It is any advantages of not claiming CCA at this time from the point of changing to principal residency (for me or my kids) or selling it ?
Hi Ame,
If you are deducting CCA now, you have tax savings now. However, recapture of CCA may occur when you change property to principal residence or sell it; the recapture amount must be added to income then, and taxes must be paid on that additional amount.
On the other hand, if you do not claim CCA now, you are not reducing your taxes currently. However, not claiming CCA now can lead to avoidance of occurrence of recapture of CCA in the future in cases of sale of property or transfer to principal residence. Hence, no recapture amount has to be added to income, and therefore, no additional taxes.
Therefore, the outcome of claiming or not claiming CCA is either tax savings now or tax savings in the future.
However, whether it is beneficial to claim CCA or not depends on other factors such as how much your property will appreciate in value by the time you sell or change status. If you are expecting the value to increase by a great amount, and hence, have a large capital gain upon disposition of property, it is better not to claim CCA now. This is because a large capital gain will push you into a higher tax bracket, and hence, even though you save taxes now by deducting CCA, you would have to pay taxes on the recapture at a higher tax rate due to being in the higher tax bracket.
Basically, whether to claim CCA or not depends on whether you would rather pay taxes now or later, which in turn depends on when you expect your income to be lower. If income is lower now, it is better not to claim CCA now and pay taxes since you will be in a lower tax bracket compared to the future.
If you do not expect your income to change, then there is not much difference regarding whether or not to claim CCA now.
Hope you find this helpful and thank you for your question.
Allan and his team
How would having multiple names (owners) registered to the property affect tax rates?
Hey Michelle,
If there is more than one individual investing in the U.S. real estate property, you could have all of the investor’s names listed on the title of the deed of purchase. This means that each person would file his/her own 1040-NR US return and their own personal tax return in Canada. Each investor involved would include their share of the rental profits on their tax returns and be subjected at their personal income tax rates.
Best Regards,
Allan Madan and Team
Hi Allan, are the capital cost allowance rates fixed? How does inflation affect CCA rates?
Hi Huy,
The Canada Revenue Agency sets the rates for the capital cost allowance every year and adjusts it for inflation. For my clients that a self-employed business out of their homes I generally advise not to claim capital cost allowances because you will lose some capital gains protection from the principal residence exemption when it comes time to sell your home.
Best Regards,
Allan Madan and Team
Hi Allan,
Do I have to pay capital gains tax on the insurance payout of my property?
Hi Charles,
This is a complicated matter and you should contact me personally so I can better address your situation. The basic however is that while the insurance payout is not taxable, you will have a deemed disposition of the property at fair market value on the date it was damaged, and if there is a gain, that gain will be taxable.
Best Regards,
Allan Madan and Team
Hi Allan,
What if I feel that the capital cost allowance rate set out by the CRA doesn’t accurately reflect the true depreciate value of my rental property, can I make claims to change this rate as specific to my case?
Hi Thompson,
The CRA have utilized a very rigorous method to ensure that the CCA rates are optimized to accurately reflect the depreciation rate in accordance with market value. While I wouldn’t say that it is completely impossible to appeal these rates, it would be extremely difficult. Your best bet would be to contact the CRA directly so that they can better assess your case.
Best Regards,
Allan Madan and Team
Hi Allan,
I had incurred some legal fees as a result of some issues with a tenant, are these legal fees tax deductible?
H Chrissy,
This is a muddy topic, The general rule is simple: they are deductible only to the extent that they are incurred to gain or produce income from a business or property. Legal fees in connection with routine business functions are generally deductible. If they are incurred on acquisition of capital properties, the legal fees have to be capitalized and expensed over several years. Legal fees for personal issues however are not tax deductible, since I don’t know more about this situation I can’t accurately determine whether this was a personal or business related matter. If you can show that it was business related, you will be able to claim tax deductions.
Best Regards,
Allan Madan and Team
The situation involved who an individual who is no longer a tenant, refusing to pay for physical damage in their rental space. I presume that would be classified as business related..yes? no?
In this case, I would agree that your legal fees should be tax deductible. However since this still a bit of a muddy issue, I cannot be 100% sure. You will have to consult with the Canada Revenue Agency to see their ruling on this matter.
Hi Allan,
I rent out a room in my house, do I have to file a rental property tax return?
Hi Cruz,
If you receive income from renting out your room, you will have to report it as part of your income. The main advantage is that you could include many fees in your house now as business expenses.
Best Regards,
Allan Madan
In calculating capital loss, will it be indexed and adjusted for inflation?
Hi J.J.,
No, neither capital gains nor losses are adjusted for inflation within a given a tax year. There is typically no substantial fluctuation in inflation rates within a given year. In cases where there is a drastic increase in inflation rates, there is a possibility that the CRA may introduce some type of tax relief.
Best Regards,
Allan Madan and Team
Hi Allan,
Is there anyway to minimize property tax?
Hi Arielle,
While you can’t change the tax rate, you can make a claim that your property has been over assessed. You need to first check your home assessment report for any factual and physical errors. You can also find similar homes that have lower assessment values which you can use to strengthen your claims.
Best Regards,
Allan Madan and Team
Very good advice Allan, additionally it is beneficial to call the municipal property assessment corporation to request a copy of the comparable property report, I did this and found my property was overvalued in comparison to similar homes.
Hi Mahmoud,
I definitely agree, using a comparable property report to show that your own property may be overvalued is one of the best strategies to decrease overall property tax.
Best Regards,
Allan Madan and Team
Can I transfer the capital loss of my rental property sale to my intermediate family?
Hi Timothy,
You can transfer capital loss to your spouse, however attribution will be triggered. This results in the taxation of the associated income and capital gains in the transferor’s hands.
Also when losses are transferred between spouses, they are categorized as “superficial losses” under the Income Tax Act. A capital loss will be denied if it is deemed to be superficial.
It is possible to avoid the attribution rule by electing to have the property transferred to the spouse at fair market value.
I am buying a new house as an investment and plan to give some incentives (discounts) until the driveway is paved and the lawn is placed. Let’s assume that I receive full rent payments (e.g. $1,000) but I mail back $50 to the tenant for the inconvenience.
1) Would the cancelled cheque be enough to proof the discount and claim it as an expense?
2) Where do I claim the discount expense? In line T776 – 9270 (other expenses)?
My preference is to have TWO different transactions… The tenant pays $1,000 (full rent) and I mail back the discount ($50). I do not want the tenant to pay a discounted rent of $950 (to make sure that discounts are not arbitrarily or mistakenly applied and for paper trail purposes).
PS: I find that getting a signed receipt from the tenant might be unpractical. Hopefully a cancelled cheque is enough.
Thanks for the advice.
/Alex
Hi Alex,
The CRA requires a ‘receipt’ to support a tax deduction for payments made. In this case, a Sales Return Note containing the following information should be sufficient evidence to support the expense deduction:
1) Name of tenant
2) Contact details of tenant including phone number
3) Check #, check date and amount
4) Reason for payment (i.e. early payment discount)
Ensure that you keep a copy of cancelled checks.
You should enter the sales discounts in the other expenses section of form T776.
Thanks,
Allan Madan, CPA, CA
Tel: 905-268-0150
HI Allan,
I sold my rental property in 2013. Now I am doing my taxes using Ufile software. Based on Ufile’s recommendations I am reporting the sale in the CCA section of the rental property in question. Over the whole period that I owned the property I never claimed CCA. (By the way I selected Class 1 – 4%).
There is a question in this section “Did you liquidate all assets in this class?” (I own another rental property that I continue to rent).
What should I answer: Yes or No?
If I answer YES, I end up with negligeable tax to pay.
If I answer NO, the amnount of tax to pay is humongous.
Hi Vladimir,
Each rental property (over $50,000 cost) should be placed in a separate class for CCA purposes. If you sell a particular rental property, you will be required to enter the lesser of the following two amounts in the ‘proceeds received’ section of the T776 Form:
1. Sales price after closing costs
2. Cost of the property (i.e purchase price after closing costs)
You should answer ‘Yes’ to the question “Did you liquidate all assets in the class?” If the sales price (after closing costs) is less than the un-depreciated capital cost of the property, then a ‘terminal loss’ will result. A terminal loss is a deduction from income. However, if the sales price (after closing costs) is more than the un-depreciated capital cost, then the previously claimed capital cost allowance will be ‘recaptured’ / included into income.
Thanks,
Allan Madan, CPA, CA
Tel: 905-268-0150
Tel: 905-268-0150
I have recently rented out my condo unit. I am not clear how to calculate the CCA, since it is just one unit in a multi-storey complex managed by a property mgmt company. Are Areas B and C something the property mgmt company can provide information on (e.g., “common areas” of the complex)? Is it even worth claiming CCA given I eventually plan on selling the unit? The property mgmt company has offered to fill out the T776E for a fee, and I’m wondering what value they can provide.
Many thanks,
Atul
Hi Atul,
The purchase price you paid (plus closing costs) for the property will form the basis on which CCA can be claimed. You must exclude the land portion included in the purchase price, as land cannot be depreciated. For a high rise building (or large complex), I normally recommend allocating a small amount toward the land.
CCA is claimed on the Rental Form, T776 at a rate of 4% per year (on residential properties). If you’re going to sell the property in the very near future, claiming CCA is not worth it, since the previously claimed CCA will be included in your income in the year of sale.
Thanks,
Allan Madan, CPA, CA
Tel: 905-268-0150
I have completed the Statement of Real Estate Rentals for 2013 and we have a net profit of around $700. Last year we had a loss of around $600. Are we able to deduct last year’s loss from this year’s profit, and if so — where do I put that on the form?
Hi AC,
You can deduct last year’s loss from this year’s profit. To claim the prior year’s loss in the current year, please enter the loss amount on line 252 of the T1 General Return.
Thanks,
Allan Madan, CPA, CA
Tel: 905-268-0150
Hi Allan,
My questions relate to a rental property purchased in December 2013.
1. I understand that the legal costs related to the purchase of a rental property must be added to the purchase price. However, is it the entire legal bill? For example, my lawyer’s fees have 3 components; purchase of property, placing mortgage on property, and services related to assignment of rents. Each charge is itemized.
2. Excluding the land transfer tax, can the other disbursements be expensed in the year of purchase? (registration, title abstract, execution search, etc..)
3. How is title insurance to be deducted?
4. The unit I purchased is part of a condominium corporation. What is the best way to establish the land value? Is this needed by CRA? I do not plan to claim CCA.
Thank you in advance for your advice.
Hi AJ,
Thank you for your questions. My responses are as follows.
1. Legal fees related to the purchase of the property must be added to the cost of the property. However, legal fees related to placing the mortgage are amortized over a 5 year period, since they are considered ‘financing costs.’ Legal fees related to the assignment of rents are a deductible current expense.
2. All other costs that are specifically related to the acquisition of the property should be added to the cost of the property.
3. Title insurance, as the name suggests, is a form of insurance that protects the owner against defects in the title of land (i.e real property). This is a deductible current expense.
4. It’s very difficult to practically determine the portion of the purchase price related to the land, where the property purchased is a condo in a high rise building. I suggest allocating a nominal amount (e.g. $5,000) in these cases toward the land.
Thanks,
Allan Madan, CPA, CA
Tel: 905-268-0150
I rented my basement last year for 4 months – to international students on homestay. I provided food (3 meals), fully furnished rooms, all utilities and transport around. My understanding for some years now, homestay fees are not taxable. Need to know are these taxable? if so what can I claim. I renovated basement and furnished them – myself. Never kept track of costs. what should I do?
Hi Okoko,
Rental income earned in Canada is subject to Canadian income taxes. You can deduct reasonable costs incurred in relation to the rental property, including the cost of meals provided, transportation, mortgage interest, property taxes, utilities and repairs. Note: The deductible portion of the carrying costs of your home is equal to the size of the basement divided by the size of your entire home.
Depreciation should be claimed on assets purchased and used in the rental business, such as furniture.
You should amend your prior years personal tax returns and prepare form T776, Statement of Real Estate Rentals for each year that you rented out your basement.
Thanks,
Allan Madan, CPA, CA
Tel: 905-268-0150
My husband and I sold our rental property in 2013. I’m filling out a T776 form and Schedule 3. It shows a capital gain, but how do I make sure my husband also claims his share of it? I don’t know if I missed a step but the whole capital gain was applied to me
Hi Tammy,
On the tax return software you are using, there should be a button or option to choose “share with spouse.” If you both own the property (on a 50/50 basis), then each of you should report 1/2 of the capital gain on Schedule 3.
Thanks,
Allan Madan, CPA, CA
Tel: 905-268-0150
I have a rental that has a suite downstairs. we legalized it this year and had a driveway installed. what code do I use for this and do I enter in area b, c,d,or e of the rental form? thank you!
Hi Craig,
If you want to claim CCA (Capital Cost Allowance) on the basement portion of the rental property, please use Area A, Column 3, to report the addition of the basement. This will be a ‘Class 1’ asset for CCA purposes.
Thanks,
Allan Madan, CPA, CA
Tel: 905-268-0150
Hi Allan,
We — my wife and I — own a rental property. When we claim CCA, should each of us calculate it out of the half of UCC?
For example, if it is class 1 property with UCC = $200,000, should I claim $200,000 / 2 * 4% = $4,000, and the say amount for my wife?
Thank you,
Alex
Hi Alex,
In the capital cost allowance area of the rental form (T776), both you and your wife should report 50% of the UCC (i.e. $100,000 each in your example). Then each of you will claim CCA at a rate of 4% (i.e. $4,000).
Thanks,
Alan Madan, CPA, CA
Tel: 905-268-0150
Can I claim CCA on furniture, appliances, and electronics purchased for our furnished rental condo but not claim CCA on the rental condo itself? 2013 was the first year it was a rental and we plan to sell the unit later this year 2014. Is it tax-advantageous to claim CCA on the furnishings for 2 years only, especially when the half year rule for 2013 is taken into account? Thank you.
Hi Wallace,
Yes, you can claim CCA (capital cost allowance) on the furniture without claiming CCA on the rental property. Furniture is depreciated at an annual rate of 20% / year and is a ‘Class 8’ asset for CCA purposes.
It makes sense to claim CCA on the furniture, even if it’s for a short period of time. It’s unlikely that there will be any ‘recapture’ since the resale value of used furniture is low. Recapture occurs if the furniture is sold for more than the un-depreciated value of the furniture.
Thanks,
Allan Madan, CPA, CA
I have a rental home, first rented in May 2013. In March I renovated the kitchen at a cost of $17k and put in new appliances at a cost of $2.5 k. Must these be entered as CCA expenses or can they be entered as regular expenses and can any net loss against rental income be carried forward.
BTW: this series is a terrific resource.
Hi Peter,
The new kitchen (excluding appliances) is an improvement made to the rental property, and should be added as an addition to CCA Class 1. Over time, the new kitchen will be depreciated at a rate of 4% per year.
The kitchen appliances are capital purchases that should be added to CCA Class 8. Over time, the appliances will be depreciated at a rate of 20% per year.
Thank You,
Allan Madan, CPA, CA
Tel: 905-268-0150
Can I claim CCA on furniture, appliances, and electronics purchased on 2009? 2013 was the first year it was a rental ? but It is still calculated by 20%? Thank you.
Hi William,
If 2013 was the first year of rental, and you used appliances purchased in 2009, then you must calculate the fair market value (i.e. resale value) of the appliances as of 2013. Obviously, the appliances will be worth much less in 2013, than what you paid for them in 2009. The reduced value (i.e. resale value) can be added to Class 8 for CCA purposes, and depreciated at a rate of 20% per year. In the year of purchase, only 1/2 of the normal depreciation can be claimed.
Thanks,
Allan Madan, CPA, CA
Tel: 905-268-0150
Hello, Allan.
Interesting article. I have just bought a unit in a condo for use as a rental property. Can I claim CCA in this year, or do I have to wait a year? How much can I claim?
Regards,
Harold.
Hello Harold.
In the year you acquire a rental property, you can usually claim CCA on one-half of the annual CCA rate. This is known as the half-year rule. Fore residential properties, the rate is 4% and it is 6% on commercial properties. If you acquired a rental property for $150,000, you would first divide the annual rate in half. For a residential property, this is 2% (half of 4%). Then, your CCA claim would be $3,000 (2% of $150,000) in the year you bought the property.
Regards,
Allan Madan and Team
Hello, Allan. I co-own a condominium with my wife, intended for our son to attend university. We have rented to one tenant, and never charged our child rent. We have never lived in the condominium, but our child only lives there while attending school (around 8 months of the year). Is there a portion that I could claim as a personal expense on the T776 form?
Hello.
Unfortunately, you can only claim expenses incurred while the property was available for rent to what is known as an “arm’s length” tenant. This term describes a relationship where persons act independently of each other or who are not related. Because you and your son are related and have the same interests, the CRA does not consider your son to be “at arm’s length”. Therefore, none of the expenses incurred can be claimed as a person expense.
If you do rent to someone who is not a family member, there are several expenses that qualify. Advertising, insurance, interest on money used to improve your rental property or paid to tenants on rental deposits, and property management fees are just some of the things you would be able to claim.
Regards,
Allan Madan and Team
Hello, Allan
I and my wife bought a single house as rental property last March. i did some maintenance and repairs in April and rented the main floor in May. then, I renovated basement and made a legal suite by myself and a few helper.
my questions are:
1. all payment to helpers should add to building addition
2. I used my van to ship materials and tools, the portion of my personal use would be 15 % but the remaining is related to renovation. mileage about 14,000KM. can I claim vehicle value loss or only gas expense? how vehicle maintenance and repairs(85 % of total) split into maintenance and building addition.
3. I have only one rental property. Can I claim some expense on the internet, home phone, utilities of my principle property( kind of home office)? also I started to purchase a cell phone starting last March for a rental purpose. can I claim cell phone expense?
Thanks in advance
Hi Wenkai,
Thanks for your question. My answers are as follows:
1. If the helpers made renovations and improvements to the property, then their wages should be added to the cost of the property as an addition.
2. Vehicle expenses can be deducted and include: Gas, repairs and insurance. Only the portion of these costs related to driving to and from the rental property can be deducted. To determine this %, divide the kilometers driven for rental purposes by the total kilometers driven during the year.
3. You must determine the % of time that you used your cell phone, internet and home phone for the rental operation. This percentage should be multiplied by your cell phone, home phone and internet bills to arrive at the deductible amount.
Thanks,
Allan Madan, CPA, CA
Tel: 905-268-0150
I sent the email this afternoon and forgot to mention I am from Canada. all questions are on the form T776.
I had a rental property in BC which I sold in 2013. Never claimed CCA on this rental property. Purchase price less sale price created a loss. Can I use this loss as a terminal loss in the year. I understand that this loss would be shown on the Schedule 3 and allocated 50/50 with my spouse. She is co-owner of our rental. Terminal loss is over $90,000. Will this bring up any red flags with CRA?
Hi Mary,
The terminal loss should be reported on Line 9948 of form T776, Statement of Real Estate Rentals. The terminal loss (plus or minus any profit from renting the property during the tax year) is also entered on line 126 of your income tax return. You will likely be audited given that the loss is a large amount. In the event of an audit, provide the Canada Revenue Agency with a copy of the original purchase agreement and the agreement for sale.
Thanks,
Allan Madan, CPA, CA
Tel: 905-268-0150
I was just wondering why this isn’t a capital loss.
You cannot have a capital loss when you sell depreciable property. However, you may have a terminal loss.
You are correct in that a terminal loss can result on the sale of depreciable property, if the selling price is less than the UCC of the property.
I’m confused. Do I report both the capital loss and terminal loss? TurboTax only prompts me to enter the capital loss but I have to open the T776 form to fill in the terminal loss.
Is land transfer deductible on rental property purchase?Regards Ontario Canada.
Land Transfer is not deductible on rental property purchase, however it is included in the purchase price of the rental property.
If a Rental has a loss before CCA (no CCA would be claimed, since CCA can only be used to reduce rental income to zero, and cannot create a loss), would that Loss on 9369 be carried forward to the future years? How that does work in Canada?
Hi Kevin,
In Canada, you have to first deduct the rental loss for the current year against other sources of income (such as employment income, business income, net capital gains, other income) in the current year. If your rental loss is more than your income from other sources, your overall loss is considered a non- capital loss and can be carried back for 3 years or carried forward for 20 years to be used against any sources of income for those years. .
Please do let us know if you have any additional questions.
Best Regards,
Hi there,
My husband and I are renting out our condo. I do all the ‘work’ (i.e. managing tenants, paying utilities, renting it out) etc.. I’m in a much lower tax bracket than he is, so it would be advantageous if I can claim the income myself. Can I do this? Or does it have to be split 50/50.
Thanks,
Jennifer
Would I be able to claim the cost of making my primary residences basement into an income suite even if it has not yet been rented and therefore has no income? And if so would that be under CCA? I don’t want to claim CCA as I don’t want to have to pay capital gains tax when I sell. Also, can I still claim half utilities and property tax and such for the basement without it having an income yet, as the space is unusable space to me while under renovation?
Thanks, Jake
Hi Jake,
Basement Renovation Costs
The costs incurred to “make your primary residence’s basement into an income suite” are likely best classified as capital rather than current in nature.
Please refer to page 10 of the CRA guide “Rental Income”, which outlines the capital versus current expense classification criteria:
http://www.cra-arc.gc.ca/E/pub/tg/t4036/t4036-14e.pdf
As the renovations to the basement would likely be considered capital expenditures, they would be added to the Adjusted Cost Base (“ACB”) of your property.
This addition to the ACB would increase CCA that can be claimed each year, should you opt to claim CCA. You are correct in stating that claiming CCA may increase your taxes owing in the future, provided that you sell the property at price greater than its original cost. Please note that CCA previously claimed could potentially increase your taxable income by a 100% income inclusion in the form of “Recapture”. This is different from the 50% income inclusion of “capital gains” in the form of “taxable capital gains”.
Even if you do not claim CCA, you may still be able to benefit from the addition of the basement renovation costs to your property’s ACB in the form of a reduced capital gain when the property is sold. The capital gain will be calculated as the difference between the proceeds of disposition and the Adjusted Cost Base – thus the higher the adjusted cost base, the lower the capital gain.
Utilities and Property Tax
Unfortunately, expenses of this nature can only be deducted against rental income earned, and thus you would not be able to claim these expenses prior to starting to earn rental income.
The following CRA link outlines various expenses you may deduct once you earn rental income:
http://www.cra-arc.gc.ca/tx/bsnss/tpcs/rntl/bt/rprt/xpns/menu-eng.html
Also note that you will not be able to claim the principal residence exemption, if you claim CCA on any part of your principal residence. As such, I recommend against claiming CCA on a principal residence.
Best Regards,
Alan, you are awesome.
The best!
Ram
Thank you Ram
I’m trying to confirm if title insurance for a rental property should be capital or current expense, last year superAmin commented:
“3. Title insurance, as the name suggests, is a form of insurance that protects the owner against defects in the title of land (i.e real property). This is a deductible current expense.”
I can’t find any official reference to sustain this claim, could someone please provide a link or further material to support this interpretation.
Hi Allan,
Great article. Great info.
My question is we own a rental property that we plan on keeping for only 5 years. We installed wood floors, and I wanted to know if I have the choice of using it as a current expense, or does it have to be under CCA. I wanted to use it as a current expense if possible because we would hardly write anything off in only 5 years. So, can I use it as a current expense, or does it have to go under CCA. Thanks
Hi Terry,
Please refer to page 10 of the CRA guide “Rental Income”, which outlines the capital versus current expense classification criteria:
http://www.cra-arc.gc.ca/E/pub/tg/t4036/t4036-14e.pdf
The criteria to consider are as follows:
• Does the expense provide a lasting benefit?
• Does the expense maintain or improve the property?
• Is the expense for a part of a property or for a separate asset?
• What is the value of the expense?
As it can be said that the wooden floors will provide a lasting rather than a short term benefit, they would be considered a capital expense with respect to the first criteria. You have not mentioned whether you previously had wooden floors in your home. However, to the extent that the wooden floors can be said to improve the property rather than merely restore it to its original condition (For instance, by replacing old wooden floors with new ones), the installation would be considered a capital expense with respect to the second criteria.
As the first two criteria indicate that the expense is capital rather than current, costs incurred to install the wooden floors are likely best classified as capital rather than current in nature.
As such, the installation costs would be added to the Adjusted Cost Base (“ACB”) of your property rather than expensed in the period incurred.
This addition to the ACB would increase CCA that can be claimed each year, should you opt to claim CCA (although you have indicated you would likely not claim CCA).
Even if you do not claim CCA, you may still be able to benefit from the addition of the installation costs to your property’s ACB in the form of a reduced capital gain when the property is sold. The capital gain will be calculated as the difference between the proceeds of disposition and the Adjusted Cost Base – thus the higher the adjusted cost base, the lower the capital gain.
Please let us know if you have any further questions, and we would be happy to help!
for a rental property which we own in Ontario, what is the purchase price as deemed by CRA?, with or without the HST gst taxes?
Hi Faraz,
Thank you for your inquiry. The purchase price is generally the price the property is bought at. Whether CRA requires GST/HST to be included when you report the purchase price depends on the form you are completing. For instance, on the GST/HST New Residential Rental Property Rebate Application, the CRA specifically indicates to exclude GST/HST when reporting the purchase price.
In order for us to provide you with a precise (black and white) answer, we will need more information such as what form/return you are completing (and for what purpose the purchase price is being reported).
HI Allan,
Mid-way last year, my wife and I rented out our townhouse. I have a couple of questions:
1. CCA – this sounds like a tax deferral item (like RRSP) whereby we can reduce our rental income now, but upon a sale, all the CCA claimed earlier will have to be recaptured. If I’m planning on selling my property soon (under 1 year), should I claim CCA or not?
2. Furniture and Lighting – Before I rented out my townhouse, I did some renovations to improve it, for example, installing wall cabinets and fancy light fixtures and chandeliers which I left for my tenant’s usage. Can this be claimed as a CCA?
3. Completing the T776 – I’m using StudioTax to complete my taxes this year. Do I have to complete a T776 form for myself and another T776 form for my wife? Or do I just copy line 9946 to my wife’s return?
Hi Michael,
1. You are correct – capital cost allowance is a way of deferring taxes. In the year of sale, you will have to include the previously claimed CCA in your taxable income. This is known as ‘recapture.’ Recapture only results when the property is sold for at least is original cost and CCA has been claimed. If you are planning on selling your property in 1 year, it doesn’t make sense to claim CCA, since the period for tax deferral will be very short. On the other hand, if you were to sell the property in 10 years, then you can defer paying taxes to the extent that CCA was claimed for up to 10 years!
2. Furnitures and Lighting will be added to CCA Class 8. The annual CCA rate for Class 8 assets is 20%. In the year of acquisition, CCA is limited to 10% of the cost of the purchased Class 8 asset.
3. You have to complete the form for both spouses, if you are both co-owners of the property. There should be an option at the top of the form that allows you to check this off. Or there will be a box where you fill in your and your spouse’s percentage of ownership in the property. The software will then automatically carry over the amounts you have entered on your form T776 to your wife’s form T776. You cannot simply put the amount on line 9946 from your return onto your wife’s tax return.
Best Regards,
I have a residential property I am renting to a coworker. The property used to be my principal residence, but now would be treated as a rental. Before he moved in I spent 2 weeks fixing up the house, everything from patching/painting, installing trim and doors in a section that wasn’t done, cleaning (including carpets) etc. I drove from my new house to the rental each day during this process (KMs), including showing him the property throughout. How would you break down these expenses? I.e., additions versus soft costs versus current expenses? This was all pre-the person moving in (i.e., empty house and no rental income during the 2 weeks). Thanks
How would I go about claiming CCA for deprecation on my car used to fix up and maintain a rental property. I note that the line item 9281 on T776E (statement of real estate rentals) has a line item expense “Motor vehicle” specifically, but it states (not including Capital cost Allowance). Am I supposed to claim it as class 10 on page two of the T776E?
Also, how would I go about claiming a 1) new furnace 2) new hot water tank 3)replacement of shingles 4)replaced asphalt driveway?
Thank a million,
Moodie
Hi Moodie,
The CCA for motor vehicle is claimed separately on line 9936 of the T776.
Generally, the four items mentioned are capitalized, however please assess the nature of each item .
The criteria for determining the treatment are as follows:
1. Has the expense provided a long lasting benefit or advantage?
2. Did the expense maintain or improve the property beyond its original condition?
3. Did the new assets acquired replace an existing asset within the property?
If you have answered “yes” to the three questions above, you will capitalize the expense. The expense will be capitalized under Area A of T776. Since the costs incurred are an improvement to the property, it will be added to the adjusted cost base under the rental property class 1 (building).
If you have answered “no” to any of the questions above, you will expense it under the T776 schedule on line 8960 as repairs and maintenance.
Please note that CCA cannot be claimed to increase your rental losses, in other words, if your rental net income is in a loss position, the CCA will not be claimed.
Thank you,
Hi Allan
Our house mortgage is both in (my wife and I) names. We rented (apporx 13k) our basement. I make about 110K per year from my work, where my wife does not have income. Can the form T776 entered under her name only as 100% ownership. or should we do 50/50 ?
Thanks
Nantha
Hi Nantha,
The spouse who owns the rental property has to report the rental income or loss. If you are a co-owner of the rental property, your share of the rental income or loss will depend on your share of ownership. For example, if your wife contributed $60,000 to purchase a $100,000 property, then the income / expenses are split 60/40 between the two co-owners.
Report the rental income the same way for each year you own that rental property. In other words, you cannot change the percentage of the rental income or loss you report each year.
Please be mindful of the attribution rules in the income tax act. According to these rules, income earned by a lower earning spouse from a property co-owned with the other spouse, will be included in the taxable income of the other spouse, if the lower earning spouse did not pay fair value for the purchase of the property. Since you are the higher earning spouse, it’s important that your wife contribute cash to purchase the property. If she contributes nothing, then 100% of the income from the property will be taxed to you irrespective of the fact that you may jointly own the property.
Best Regards,
Hi,
I just stumbled on this site as I was looking for help on my tax situation. Part of my question is related to the response that you gave to Nantha here. My wife and I moved from our previous home in November 2014 and converted the home to rental property as we bought a new one. However, I owned the now-rental before we got married. We rented the home for one month in 2014, so when I filed our taxes in 2015 I reported the one month and some of the expenses.
The problem is, I got the wrong advice from talking to people that I could report the rental income under my wife, because she doesn’t work and doesn’t have any income. So, when I completed the T776 in 2015 for the 2014 tax, I reported it under my wife. We were going to do the same thing now, but while reading through this thread, I discovered it was wrong last year. From your explanation, the Taxes should have been reported under my own filing. Now I will complete my 2015 taxes correctly by reporting the rental income for 2015 under my name.
My concern is, how can I rectify the last year taxes and contact the CRA that the T776 has the correct information, but it should have been under my own income and not my wife. How can I correct this. I am really worried now. I have never been audited before and have not now, I am afraid what questions this will bring up for reporting wrongly under my wife. What do you advise that I do? That is before even filing my 2015 taxes. Thank you
Thanks for your question. You should prepare a T1 Adjustment for the 2014 tax year for you and your wife so that the rental income and expenses are correctly reported on your tax return and not hers. It’s much better to catch and fix this problem now before it gets worse with time.
I currently co-own a rental home with my wife and have done so for about 8 years now. We are investigating purchasing a second rental property, but with an additional co-owner, unrelated to us. Would this still be considered co-ownership, or is it a partnership? Can we claim the capital cost allowance on our portion, but he choose not to claim his portion and leave it till the sale years later?
Hi Ryan,
Generally, a partnership exists if two or more people are carrying on a business for profit purposes. A lot of detailed information on Partnerships is available on the CRA website at http://www.cra-arc.gc.ca/tx/tchncl/ncmtx/fls/s4/f16/s4-f16-c1-eng.html .
As for the capital cost allowance (CCA), each co-owner can decide separately whether or not to claim it as deduction. Hence, you can claim the CCA even if another co-owner chooses not to.
Sincerely,
If a rental property was vacant for 3-4 months, what is the best way to have this captured on taxes? Is it considered an expense as I would have covered the mortgage, maintenance fees etc, or as less income from rent, as no rent was collected during these months of looking for a tenant.
Thank you,
Hi Allen,
I purchased a house with a rental suite already in the basement. I want to find out how the mortgage interest tax deductible is considered. If the rental unit is about 30% of the total property size, can I deduct the interest cost of 30% of the puchase price? Or can I only deduct 30% of what I borrow?
For example, house bought for $600k and I borrowered $400k and paid $200k in down payment. Can I claim mortgage interest paid on the $180k (30% of $600k) or on the $120 k (30% of $400k )
Thanks
Hi Yvonne,
You can claim a deduction for the interest paid on $120,000.
Best Regards,
Hi,
I am trying to plan the structure to have low tax rate for years to come.
I currently have one property, still owe mortgage, its under my personal name. Planning to get one more in coming months, and few more later, but of course slowly. They all use mortgage of 20% or less. So overall they arent making much income.
Im thinking about moving first property into corporation buying second, third rental properties using corporation.
Do you think its good idea or I keep them under my personal name?
Second question is, do I pay tax on the pricipal portion i pay down?
Ontario corporations pay income tax at a rate of 46.4% on net rental profits. If your current personal tax rate is less than 46.4%, you will not save taxes by incorporating your real estate assets. You should consider the three tier structure to save taxes as a real estate investor. See my video on this topic http://madanca.com/blog/benefits-three-tier-structure-real-estate-investors/
Re: Recapture of CCA
Is it possible to recapture CCA before one sells a rental unit.
I have a rental property and have used the CCA since it was purchased in 1998. I plan on selling the unit in the next
5 years. Is it possible to start recapturing some of the CCA on my tax return before I sell?
Hi Denise,
Thanks for contacting me. CCA can only be recaptured when the property is sold. If you would like to recapture a portion yearly of the CCA previously claimed, consider selling a portion of the property to a family member for fair market value. This may trigger capital gains tax in addition to recapture if the property has appreciated in value since you bought it.
Hi,
Please I would like to know what’s the difference between real state rental income and rental income for the corporation.
thanks
Hi Sofiane,
Thanks for your question. Rental income must be collected by the owner of the property. The owner can be an individual, corporation, partnership or trust. If the rents are collected by an individual owner, then he/she must include the collections in his/her income. Likewise, if the rents are collected by a corporation, then the corporation must include the rents collected in its income. Canadian controlled private corporations (CCPC’s) pay tax at a rate of 46.2% on net rental profits. Individuals pay personal income taxes on net rental profits according to their marginal tax rate.
Thank You,
Hi Alan,
I’m a new business owner. i’m leasing a commercial property and I have put lots of money into renovating it. Do i capitalize the renovation or expense it?
Thank you
Hi Moe,
Capitalize the money spent on renovations to the cost of the property. Capital Cost Allowance can be claimed each year.
Hi Alan,
My husband and I purchased a duplex with his brother and wife about 9 years ago. This has been our primary residence however, the other couple relocated in the spring of this past year.
It is our understanding that we are required to each claim 1/4 of the rental income from the other half of the duplex that they formerly occupied. However, we are not actually receiving any of the rental income. Are you entitled to our share of the income as we are obligated to claim it as income?
Thanks
Hi,
My wife has owned a rental property (a condo) for the last 4 years, which she purchased before we were married. The land title and mortgage are in her name only so she has been claiming 100% ownership on the T776. Now, she’s a stay-at-home mom so aside from the rental property, she has no income. In 2015, she was assessed a $12,500 special assessment (for building deficiencies and repairs), which was obviously paid from my income. Two questions:
1. Under what category of expenses is the special assessment applied?
2. Is there any way to transfer the rental net loss (or a portion of it) to my own income?
Thanks!
I enjoy reading your comments.
My wife and I bought a rental property in 1989 but have not claimed CCA nor have the building listed on the CCA form. I would like to claim CCA on the building starting 2012. Do I list the building on the addition for 2012 even though it was bought in 1989? Should I claim half of 4% or the whole 4%?
Thank you for your reply.
Technically, your supposed to amend the return for 1989 and report the purchase on that return. It’s practically easier to add the addition to the 2012 return (only 50% of normal CCA allowed in year of acquisition).
Hi,
I am Canadian citizen and USA resident. I am selling my rental condo at very big loss and can I carry forward terminal loss to future years so I can use it reduce net income from other two rental properties I have?
I file my taxes under section 216. I am not sure about carry back and carry forward rule for non-resident.
For each property I fill separate form T776 and calculate CCA separately for each property. I am little confuse with CRA condition for terminal loss that I should not have any other property in same class. Will I able to take terminal loss?
Thanks,
Pankaj
Hi Pankaj,
Non capital losses (including terminal losses) cannot be carried forward on a Section 216 Return.
Thank you for reply.
Will I be able to deduct this terminal loss amount from same year’s rental income?
My wife and I have owned and rented out (its only use) a furnished condo for the last 10 years. I understand I can claim CCA on the furniture but am not sure if this is possible to claim CCA of furniture if it creates or increases a loss. The condo rental operated at a loss the first 9 years and is turning to a profit now (before CCA). Can I claim CCA now on the total purchase cost of the furniture from10 yrs ago if it creates a loss, or do I have to apply the 20% rule going forward and avoid a loss? I have not yet claimed any depreciation on the furniture due to confusion over this.
Many Thanks
Hello,
I am buying a new home soon, and i am thinking of renting my condo to my parents.
I’m not sure ether to clam cca or not? I know that there could be a “recapture” of the cca when I sell the condo later in life. How do I figure out if its better to claim cca or not?
Also, I refinanced the condo to get my down payment for the new house. I know that i cant claim the interest for the down payment portion of the refinance, but can i calm the cost of refinancing.
Thanks
Rui.
Hi Rui,
Thanks for your question. If you rent your condo to your parents you can still claim capital cost allowance (CCA) on the building portion of the property (i.e. excluding land). The benefit of claiming CCA is that you will receive a tax deduction, which will reduce your net rental income and taxes payable. The disadvantage is that when you sell the condo you will have to include in your income in the year of sale the CCA claimed to date. However, according to the time value of money concept it’s better to claim CCA now and increase your cash-flow.
The fees that you paid to refinance and the interest on the loan cannot be deducted for tax purposes if you are going to live in the new home. If you are going to rent the new home, then these expenses can be claimed. Note that finance charges are amortized over 5 years, while interest expense is deductible in the year incurred.
Hello,
I live in a 2 bedroom apartment with individual washroom but shared living room and kitchen area. Is it reasonable to allocate 50% as personal use and the 50% to my roommate when figuring out expenses.
Also, should I prorate my property taxes expenses and home insurance from the date of my roommate moving in, or to calculate it from the date the property is available for rent.
Thanks!
Hello Jimmy,
Yes, 50% is reasonable in this circumstance because your roommate is sharing 1/2 of the space. Start deducting expenses from the date the lease agreement commenced.
Hi i had a US rental income loss of approx 5K in year 2012 without depreciation but did not claim it on my canadian 2012 tax return. I had other income in that year. Can I claim this loss now and how do I claim it? Should I make adjustment to 2012 tax form? or This year , I have rental income gain of approx 6K. CanI apply 2012 rental loss of 5K against this gain. It is not a non capital loss for line 252.
Thanks
Hi Paul, thanks for your questions. You must amend the T1 tax return for the 2012 year to report the 2012 rental loss for your US property. While you may have had a loss for US tax purposes, that doesn’t necessarily mean that you will also have a rental loss for Canadian tax purposes. This is primarily because depreciation for US purposes and Canadian purposes are calculated differently. Also remember that depreciation cannot be used to create a rental loss in Canada. Finally, foreign income must be reported on your Canadian tax return in Canadian dollars using the average exchange rate for the year.
Non capital losses can be carried forward for up to 20 years and can be applied against any type of income. Tip: If the cost of your foreign properties (in Canadian dollars) is more than $100,000 then they must be disclosed on form T1135, foreign income verification statement.
Hello Allan,
Thank you for your Blog, it is really informative.
My husband and I live in Ontario, and we purchased a condominium townhouse in Calgary as an investment. We have since rented it to a family member who had been renting previously in the Calgary area. With regards to the “Arms Length” rule, we are charging a fair value for rent and they are also looking after utilities.
Questions are as follows:
1) Is it expected and customer to show a loss for the first couple of years?
2) What class would the condominium townhouse fall into for CCA and how do I determine the land percentage to building?
3) When the property was purchased, the appliances were included as part of the deal. Is their fair market value deducted from the purchase price, and then that value would be split land vs building for CCA?
Thanking you again,
Hi Marie, Thanks for your questions. If you are renting the property to a family member for rents that are below market rates then you cannot claim a rental loss. The condo will follow under CCA Class 1. If it’s a high rise building with multiple condos I normally allocate a small amount of the purchase price toward land (e.g. $5,000). Appliances are included in CCA Class 8 and they should be deducted from the purchase price; estimate the market value of the appliances if they are not specified in the purchase agreement.
Hi Allan. Thanks for this very informative blog.
Similar to a previous poster, I rented my cottage last year for the first time. It was listed for approx 10 weeks and rented for 7 weeks. I rented it as more of a cost recovery with no real expectation of profit.
You mentioned that utility expenses could be claimed only during the period the cottage was rented. My questions on this point:
1) Does the same apply to mortgage interest?
2) Are these expenses prorated based on how many weeks it was ‘actually’ rented or on how many weeks it was listed for rent?
And more questions. 🙂
3) I purchased the cottage in May of 2014. For tax year 2015, am I able to claim legal fees paid during the purchase? How about home inspection fees?
I have read about change of use of a property (and am completely grey on the topic) and wonder if you could touch on that? I purchased the cottage for personal use. Not long afterwards I was downsized and, as mentioned previously, am simply looking for cost recovery.
4) If I extend the availability to rent to 4 or 5 months of the year, should I be concerned about any immediate or future tax issues?
As I am currently in a rather low tax bracket, CCA does not appear to be something I should consider. I understand it will always be my decision whether or not to use CCA.
Thanks in advance!
Super informative post, however, I am finding something confusing. I have just filled out my Turbotax submission and told the program I sold a rental property. The sale generated a loss of $11,000. The program has prompted me to enter it as a capital loss, but I thought you can’t have a capital loss on a depreciable property? I was under the assumption that this should be reported as a terminal loss on the T776 form. TurboTax at no point prompts or asks me about a terminal loss, so do I just go into the form itself and enter the terminal loss on line 9948? If I claim this terminal loss do I delete the capital loss reporting, or do they both need to be reported. (once on the T776 and the other on the T1)?
Thanks for your help!
from Confused in Ottawa, aka Jason 🙂
Hi Jason,
You cannot claim a capital loss on depreciable property, including real estate. Check the box for ‘terminal loss’ next to CCA Class 1, so that the loss is properly reported on form T776, Statement of Real Estate Rentals.
Hi, Great info here! My questions.
My wife and I bought a rental house in June. It took me 3 months to renovate the house to get it liveable for Rent.
1.I have reno expenses for Jun -31Aug, do I add them to the cost of the purchase price?
2.The expenses I incurred for Sep-Dec while rented for minor fixes, I plan on using them for current expenses. Is that ok?
3. Are all other expenses ie Mtg interest, vehicle gas, Insurance premiums, property tax, claimable for 7 months(Jun-Dec) or are they only claimable for the rented months(Sep-Dec)?
Last 4. Can the current expenses be carried forward to the following year since they are greater than the total rent income or should I claim it against all of my income?
Thanks!
Hi,
We pay for a rent-to-own furnace in our rental home. Can we claim that on our income tax? Thanks!
Hi Melanie,
Claim the rent paid as an expense.
Hi – I owned a vacation condo for several years that I sold in 2015 for a $10,000 loss. I used the condo 75% to earn rental income and 25% personal use. I understand that I can claim a terminal loss for the rental portion. Do I have to report the full amount of the sale on Schedule 3 – even though I can’t use a capital loss. Or do I just report the sale of the personal portion on Schedule 3 under personal property. Thank you!
Hi Steve,
Do not report the information pertaining to the sale on Schedule 3. A terminal loss should be claimed on form T776, Statement of Real Estate Rentals.
Allan,
This is one of the best Q&A sites I have seen.
My wife and I bought a rental condo in 2008. We have never used the CCA. This year I have done some more reading and noticed it is something that makes sense for us to do. Do I use my initial purchase price for the starting CCA calculation? Do I use the %50 rule this year.
Thank you,
Tim
Hi Tim,
The original purchase price must be reported on Areas A and C of form T776, Statement of Real Estate Rentals, for the 2008 tax year. Even if you did not or do not intend to claim CCA for the 2008 year, you still have to report the purchase price in the year of acquisition. This means form T776 must be amended for the 2008 tax year.
Since the UCC amount carries-forward each year (see Area A), form T776 must be amended for the 2009 to 2014 tax years too. Remember to separate the purchase prince between land and building, because land cannot be depreciated.
Hi Allan: I sold my rental property last year for a loss. I paid HST on part of the purchase price in 2008 because I used it 30 % for personal use. In 2012 I had a change in use to 100 % rental use – no personal element. As a result I was refunded the HST that I had paid in 2008. It never dawned on me to reduce my UCC in 2012. But since in 2015 I will have a terminal loss, I think I need to reduce my UCC by the amount of this tax refund and this will reduce my terminal loss. How would I enter this change to the UCC on form T776. Thanks for your help.
Hi Cate,
Enter the refund as a downward adjustment to the UCC on form T776, Statement of Real Estate Rentals.
Hi Allan,
Me and my husband own a rental condo in calgary. How to report it in Tax return? Do I have to report half income in my return and half in my husband’s return? Do we split the deductions also in half?
Please advise. Thanks.
Hi Aarti,
Both of you will have to complete form T776, Statement of Real Estate Rentals. Enter your spouse’s ownership details at the top of the form. If you do this, the tax software should auotmatically calculate your share (50%) of the net rental profit.
Hey thanks for the great information. My wife and I purchased a second house to renovate and rent out in 2015. In 2015 we renovated the upstairs and now have tenants occupying it. The basement has a separate entrance and is unfinished. A few questions for you:
1. As the basement is not occupied by tenants, I can only claim 1/2 of insurance, utlitiies, city tax etc as a current expense?
3. Is it acceptable to add all pre-tenant soft costs and renovation materials and add it to the purchase price vs further breaking them down to see what may be a current expense?
2. For calculating the CCA: the purchase price was $150K but was not further specified for amount regarding land vs building, is there an acceptable ratio or ballpark number?
Thank you!
Hi Mike,
Thanks for your questions. My answers are as follows:
?Since the basement is unfinished and therefore cannot be rented, you can only claim 1/2 of the operating costs (i.e. current expenses).
Labor costs and materials purchased to renovate the property should be added to the property’s adjusted cost base. Soft costs incurred during construction (such as property taxes and mortgage interest) are also added to the ACB.
Ask your real estate agent to provide a breakdown between land and building. The % breakdown really depends on the location of the property.
One further question, is a MPAC registration fee to be included in ACB? Thanks.
Hi Mike,
The MPAC registration fee is not a cost of acquiring a property. It is related to property tax assessments, so I would deduct the registration fee as a current expense.
i have two properties a condo and a house, i rented out my condo and somebody renting my basement, how am i going to file my tax? with the two properties, condo is 100% rented out and only a part of my house is rented out. Thanks
Hi Tina,
Thanks for your questions. Complete a separate form, T776 – Statement of Real Estate Rentals, for each property – one for your condo and one for your house.
Since you are only renting a portion of your house, fill out both columns on form T776 – total expenses and personal portion. The personal portion is the percentage that your personal living space (excluding rental area) is of the total square footage of your home.
Hi Allan,
My adjusted cost basis for a property I purchased in 2012 was $325,000. I had no capital additions to the property nor did I claim Capital Cost Allowance.
My net proceeds after selling the property in 2015 was $318,000. I incurred a loss of $7000. My question is, is this a terminal loss or a capital loss? As I mentioned, I did not claim any CCA in any of the prior years.
My Net Rental income in 2015 (excluding the $7000 loss on sale) was $4000 for the year. Do I deduct the $7000 for from the $4000, which results in a net loss of $3000 that I can deduct on my Income tax return?
OR
Do I report gains of $4000 and carry forward a capital loss of $7000 that I can hopefully offset by an associated Capital gain in a future year?
It seems to me that it is advantageous for it to be a terminal loss.
Would Appreciate your input!
Hi Mark,
Even though you did not claim Capital Cost Allowance, the loss on the sale of your rental property is still a terminal loss. The terminal loss of $7,000 should be deducted from the rental profit of $4,000, resulting in a non-capital loss of $3,000. Therefore, enter a loss of $3,000 on line 126 of your T1 tax return.
Great Allan,
Thanks for your reply.
Last Question, my wife and me both own the condo. However she is getting all rental income (She is taking care of all rental management).
It is possible to declare full income from the rental on only her tax return and nothing on mine or since we both own the condo we need to split income and expenses 50%
Thanks
Hi Mark,
Split the income and expenses on a 50/50 basis because you both jointly own the property.
Hi Allan,
I bought a house in 2014 and was renting out half of it to cover the mortgage. I reported rental incomes in the 2014 tax as 0 because I claimed CAA. But in 2015 life got in the way and I had to sell the property at a slight loss after various fees. I just did the math and I have about 15k in terminal loss on the building and few hundred dollars of capital loss on land.
I’m planing to claim the rental portion of the terminal loss against my income. My question is would CRA try to use “reasonable expectation to make a profit” to denial my claim because I essentially never claimed any net profit? I do have all rental documents such as leases, receipts. Thanks in advance!
Hi Yoyo,
A terminal loss can be claimed even though you did not have a profit previously.
Hi Allan,
Great forum !
In 2014 I bought a condo in FL for rental purposes, it is rented yearly (been lucky so far!). My principal residence is in Canada. I am filing separate taxes for US and Canada on this rental property. I have purchased the rental condo with 90% borrowed funds from my Canadian HELOC and I have the option to pay interest only. How do I properly calculate the interest for the rental income property each year?
Say the original borrowed funds are $83,000 CAD (yes I am aware of the currency exchange factor, etc). Can I claim each year moving forward the interest for this same initial amount, or do I have to minimize the initial amount each year by the corresponding CCA claimed on the Returns? Example: for 2015 CCA would be $3320… Do I claim interest for (83,000-3320)= $79,680 ?. Note that my net income from rental -after all deductions- was only 1,500 for tax year 2014. How can I pay any principal back into the HELOC if I only make 1,500 from the rental income…which I am using during the year for condo expenses. I would think the interest can be claimed on the initial amount indefinitely/ until I sell the property..??
Anticipated Thanks!
Hello Allan,
My wife and I, along with another couple, purchased a run-down house in Sept 2015 with the intent to renovate and rent out for the next 7 years. We then plan to sell our homes, demolish the rental and build a 2 suite unit for the 2 couples.
1 – Since we substantially renovated the home to make it suitable for tenants from Sep 2015-Feb 2016 (tenant as of March 18), would the reno costs, purchasing costs, carrying costs, and soft costs be considered a capital expense and added to the price of the property for CCA purposes?
2 – I know that we cannot claim any expenses in 2015 since we had no rental income but do we still report the cost of the purchase of the property on T776 in Area A-3 as “Costs of additions in the year” for the 2015 tax year? Would the pre-rental improvement costs from 2016 be added to this category in 2016?
3 – What is the best way to break down the land cost vs the building cost?
Thanks for your help.
Hi Allan,
Thanks for this great Q&A
I bought a condo in 2006 and started renting it only in 2015.
For 2015 CCA claimed on the property (4%) should I use the original purchase price (2006 price) or the current market price of the condo (2015 price).
Me and my spouse own the condo. She has a lower revenue than me. Can she be considered as the only beneficiary of the rental ?
Also what is the usual percentage used as base for a condo to calculate CCA (Since land cannot be included in CCA calculation). For a condo it is difficult to identify land percentage.
Last question when do you suggest to claim CCA and when do not claim
Thanks!!
Hi Ben,
The cost amount of your rental property is equal to the market value of the property at the time you began renting it. I suggest that you have a real estate agent provide you with an appraisal.
It is very difficult to determine the land portion of a condo in a high-rise building. I normally subtract a small amount (e.g. $3,000) from the cost amount for land; I have not been challenged by the CRA on this approach to date. Note that you cannot depreciate land. Therefore, claim capital cost allowance on the cost amount (as explained above) less the portion attributable to land.
I recommend that you claim CCA because you can receive an immediate tax savings by doing so. Consider investing the savings realized from claiming CCA into a TFSA. By doing so, you will have tax-free cash available to pay income tax on the recapture of the previously claimed CCA at the time of sale.
Hi Allan,
Thanks again for all your answers.
Me and my wife bought a condo in 2006. In 2015 we moved to a new house and instead of selling our condo we rented it.
Our Total Net Family income for 2015 is around 200 000$
What would you recommend for condo rental treatment
1. Consider Condo as a redeemed disposition and then claim CCA Deductions for 2015 to reduce the income from rental and total tax to pay. This means that if we need to sell Condo in future we will need to pay Gains on Capital on Condo+ all claimed CCA
2. Submit a request to still keep Condo as principal Resident (4 YEARS exceptions ) and not Claim CCA for this year. This would mean that we will need to pay extra taxes for this year. But if we sell our condo in the next 4 years then gains will be sheltered due to principal residence exception
Currently we have no plans to sell our condo
Thanks
Hi Allan
Thank you so much for your very helpful information.
I purchased a property in 2011 with price of $130k, and sold for $217k. So far I have claimed CCA for $4,463 in total.
Should the line 9947(recaptured capital cost allowance) in Form T776 be the value of $4,463?
I am using Turbo tax, this field is calculated field, and the value was filled with $217k – $130k +$4,463, I am confused, so I manually entered the value of $4,463 on line 9947, am I correct?
Thank you so much!
Stephen
Hi Stephen,
Do not manually enter the recapture amount. The software should calculate it automatically. It should appear on line 9947 for $4,463.
last year we sold a rental property at a loss. I entered all the data in UFile on a tab called “Capital Gains and ABIL” by adding a sub-tab by selecting “Real estate and other depreciable property”
I realise from reading these comments that this may have been wrong, I should have perhaps put it under the CCA tab for that property. What it did was add the actual amounts for sale, expenses, acquisition cost to the schedule 3 for 2014, but did not calculate the capital loss. So the loss carryforward is short by this loss. How can I fix it. Thank you very much.
Hi Vaishali, Thanks for your question. Complete a T1 adjustment to correct the mistakes made. A terminal loss (not a capital loss) should be reported on form T776.
I suggest that you hire a professional to help you with this adjustment, as it’s complex.
Very informative and really appreciate you taking the time to answer all our questions!
After reading through most of the comments above, I will hopefully not be asking a question that was already asked.
My wife and I had an investment condo from 2010 to 2015. We sold it in 2015 at a loss. Approx. $20,000 based on “fair market value” when it changed from being our principal residence to an investment property minus the price we sold it for and taking into account deductions such as real estate agent fees and closing costs at the time of sale. At no time did we do CCA.
Questions:
1. According to CRA there are “types of capital property” including (Land, Building, Farm property to a child, Ecological property, other depreciable property). Which one would a condo be? (Land doesn’t exactly make sense. It’s 1/80th of a building so that doesn’t seem to apply. Other depreciable property possibly? What are your thoughts?
2. I saw the use of the term “Terminal Loss” vs “Capital Loss” above in the comments. From what I understood by looking at CRA’s definition (“You may have a capital gain or capital loss when you sell or transfer capital property. Some common types of capital property include land, buildings, shares, bonds, fund and trust units.”) it seems like since I sold the condo at a loss, I can use the loss to offset capital gains tax from the sale of stocks. Since both are considered “capital property” and a loss in one can offset the gain in the other. (We sold stock at a gain in the same tax year) Is that not correct? I don’t understand how terminal loss comes into play in this situation.
Thank you!
Roger
Hi Roger,
A condo that’s used as an investment property is classified as depreciable property, specifically CCA Class 1. The loss on sales will be treated as a terminal loss. A terminal loss is a type of non-capital loss that can be applied to reduce any income source.
Hi Alan,
We bought a new house in Jan 2015 and changed the previous principle residence, a bungalow to a rental house in Feb 2015, but we eventually rented the bungalow out in Apr 2015. Can I claim the property tax and insurance fee from Feb to Mar against the rental income from Apr to Dec 2015? as we already moved out by end of Jan 2015?
The bungalow was built in 1965, we bought it in 2014 and used it as our principle residence for 8 months before changing it to rental property. How do I determine the building value from the total cost? I understood that I can add the lawyer fee paid for buying the bungalow to the property cost and will split the lawyer fee between the building and land, Can I add repair fee, appraisal fee, inspection fee, interest during the 8 months to the actual cost of the property when calculating the capital cost for Change in use? I obtained the FMV of the bungalow during the period Feb-Apr2015 from the realtor, by using the capital cost calculation table, there is a $7K capital gain, do I have to claim the $7K capital gain in our 2015 tax return?
Thanks for your advice!
Helen
Hi Helen,
My responses are as follows:
1. Obtain an appraisal report for the property on the date that you moved out and began advertising the property for rent. The appraised value will become the adjusted cost base for tax purposes. However, if the value did not change significantly from the date you purchased the property in 2014 to the date you moved out and began advertising the property for rent, then you can use the initial purchase price for the adjusted cost base. Legal fees, and other closing costs (e.g. inspection fee, title insurance, land transfer tax) can be added to the ACB. Improvements made to the property can also be added to the ACB. Mortgage interest incurred while you were living in the property does not change the ACB.
2. The gain does not need to be reported on your tax return, because you can claim the principal residence exemption, which means the taxable gain is $0.
3. Property tax, insurance, mortgage interest, and other rental expenses can be claimed starting from the date that you moved out AND began advertising the property for rent.
Hello
Thank you for all the information!
I have some questions for rental property of a new constructed condominium. The condo was rented out in 2015, however the property tax bill is not received so far. When file the tax return for this property, how the property tax should be reported? Can it be reported as expenses in the year the bill is actually paid(probably 2016 or 2017)? Or I should estimate an amount for the tax and deducted in 2015?
Second question is, I paid occupancy fees for the last two months of 2014(the property was not registered at that point). I did not claim the expenses during 2014, I wonder if I can capitalize these occupancy fees to my cost base? Thank you for your help in advance!
Hi Coco,
Wait until you receive a property tax assessment before deducting property tax expense. You can deduct occupancy fees so long as you were actively looking for a tenant (or had one) during the occupancy period.
Hello,
I have a question regarding “changing from personal to rental use” which I have never seen addressed.
I purchased my house in 1991 for $100k. This was my principal residence until 2015, when I changed it to a rental property. The FMV in 2015 was 350k.
When completing the T776, I expected to place a figure of approx. $300k in Column 3 of Area C (building only value), but the Rental Income Guide has a section (Special Situations – Changing from personal to rental use) with a calculation that says to take the Actual cost of the property (approx. $80k, building only), subtract it from the FMV (approx. $300k, building only), take the result ($220k) and divide by 2 (=$110k) and add that to the Actual cost ($80), giving $190k as the number to enter into column 3.
This doesn’t make sense to me. Is this calculation for CCA use only? Where is it recorded that the FMV of the property was $300k upon changing to a rental property, so that the capital gains is correct when I sell it in the future? I called Revenue Canada twice now and they couldn’t explain it, just said to do it.
Thank you very much.
Mark
Hi Mark,
Great question. The logic behind the calculation is that since only half of the appreciation is taxable to you because of capital gains treatment, then only half of the appreciation should be eligible for capital cost allowance.
In your case, the building portion of the property appreciated by $220,000 from the time of purchase to the time you converted the building into a rental property (i.e. $300,000 FMV less $80,000 purchase price). When the building was converted into a rental property, only 1/2 of the capital gain of $220,000 became taxable to you, i.e. $110,000. Therefore, you should only be allowed do claim CCA on 1/2 of the appreciation, i.e. $110,000, and the original purchase price, i.e. $80,000. Fortunately, you were able to claim the principal residence exemption so that you do you have to pay taxes on the capital gain of $110,000.
Note that this calculation is for CCA purposes only. When you sell your property, the capital gain will be equal to the difference between the selling price (less selling costs) and $300,000. You will not be double taxed.
we bought a house in 2011 for 240k. in 2013 we converted to a rental property we estimated the property to be valued at 270k so i put it as a class 1 in cca but never claimed any. weve sold the property in 2015 for 350. is the capital gains calculated as 350-270-closing costs?
also we bought another property after we sold and is now renting out to son and his wife. can we claim expenses such as new appliances and maintenance costs since they are related? could we also expense the closing cost or is thay part of cca?
thanks!
Hi Sohpie,
Thank you for your questions. The capital gain is the equal to the difference between $350,000 (selling price) and $270,000 (ACB), less closing costs.
New appliance are added to CCA Class 8. Maintenance expenses are deductible from rental income. Closing costs are added to the ACB of the new property (Class 1 for CCA purposes).
Thank you for your reply, Allen!
I wonder if I don’t want to claim CCA in the future, can I do not report the purchase price(cost base) of the rental property in T776? Just report the incomes and current expenses only. Thank you!
Hi Coco,
Report the adjusted cost base on form T776.
Alan, you’re awesome! Thanks for all the replies. It’s quite helpful.
1 question. I currently co-own a rental property, but I don’t live in a residence I own. The place I live in is a rental property itself and I do so because it works out cheaper for me than to actually live in my own place. My question is. In order for me to rent my property to someone else, I have to incur this rental expense. Can the place I live in now be deducted as an expense for the rental income?
Hi JD,
You must report the income and expenses on your personal tax return for the portion of the rental property that you rent out to someone other than yourself.
Hi, my wife had a house that she used as a rental property. Her tenant vacated without notice before the end of the lease and left damage that needed to be repaired before the house could be rented again. After the repairs were complete, she decided she had had enough of renting and decided to sell. She put the house on the market and sold it several months later.
She’s not sure how to report the costs of repairs to the tenant’s damage or the delinquent rents, or expenses incurred while it was vacant due to needing repairs. I’m guessing the eventual sale would be straight forward — she never deducted CCA — but is there anything she should watch out for?
Thanks very much.
“She’s not sure how to report the costs of repairs to the tenant’s damage or the delinquent rents, or expenses incurred while it was vacant due to needing repairs.”
This part would be better stated as “She’s not sure how to report the costs of repairs to the tenant’s damage or the delinquent rents, or expenses incurred while it was vacant due to needing repairs *given that she ended up not renting it again*.
Thanks.
Hi Bill,
The cost of repairs to make the property ready for sale should be added to the cost of the property. She cannot deduct operating costs during the vacancy period because she never actively searched for a tenant during that time.
Selling costs can be deduced from the selling price when computing the capital gain realized on the sale.
Hey Allan. When claiming expenses on the T776 do I include GST/HST. For example I bought supplies from home depot to do some repairs, do I include as expenses the total price of that supplies including the taxes ? Thank you.
Hi Dan,
If you have not registered for HST and are not claiming input tax credits, then you can claim a tax deduction for the HST paid on business purchases. In your example for supplies, expense the total purchase amount (including taxes).
If you have registered for HST and are claiming input tax credits, then you cannot claim a tax deduction for the HST paid on business purchases. In this situation, HST paid on business purchases should be recorded as a reduction of the HST payable account.
No I am not registered for HST nor claiming input tax credit.
Can this be applied to services I pay for as well, such as Duct Cleaning, Property Management invoices: can I include total cost including taxes on lines 8521 to 9270 on the T776 form ?
Thanks very much for the answers.
Hi Dan,
This applies for services as well. Put the total cost including taxes on lines 8521 to 9270 on form T776, Statement of Real Estate Rentals.
Hello,
I replaced the shingles and windows on my rental property. Do I have to add the value of the improvements to the cost base of the house or can I depreciate these improvements separately from the house? The reason I want to keep them separate from the house is that I am not depreciating the rental property but I would like to expense these particular items.
Thanks in advance.
Hi Bruce,
These are capital improvements and are added to the cost of the rental property.
Hi Alan
When establishing the FMV for the purpose of changing from a principle residence to a rental property, is it essential to have an appraisal done? Can an estimate be made by comparing recent sales of similar properties in the area?
Thank you so much,
Natalie
Hi Natalie,
It’s not essential, but it’s preferable. You can complete the valuation yourself so long as you use 3 comparable properties to prepare your valuation.
Hi Alan
I’ve moved out of my house and made it into a rental property. I am wanting to claim the CCA, but I’m unsure how to calculate the value of the building (I know that I cannot depreciate the land). How is this done?
Additionally, will I only get to claim half of the typical amount in the first year, even though it’s not the year of purchase (I owned it for over a year).
Thanks,
Luke
Hi Luke,
You should have the property appraised at the time it became a rental property. An appraiser can provide a reasonable breakdown of the values for the land and building.
You can only claim one half of the CCA in the year of conversion from primary residence to a rental property.
I sold my rental property. The sale price was agreed upon of $250K, which I considered to be a good estimate of the true fair market value for the property.
Upon inspection, it was determined that the septic field had to be replaced, (hidden defect, did not know field was about to fail) which I had to pay for in the order of 15K.
Do I lower the FMV of the property to $235K or do I claim the 15K to replace the field as an expense?
Hi Larry,
The $15,000 spent should be treated as an addition to the cost of the rental property. This will reduce the gain on sale by the same amount.
“Hi Alan
I’ve moved out of my house and made it into a rental property. I am wanting to claim the CCA, but I’m unsure how to calculate the value of the building (I know that I cannot depreciate the land). How is this done?
Additionally, will I only get to claim half of the typical amount in the first year, even though it’s not the year of purchase (I owned it for over a year).
Thanks,
Luke”
Hi Luke.
“You should have the property appraised at the time it became a rental property. An appraiser can provide a reasonable breakdown of the values for the land and building.
You can only claim one-half of the CCA in the year of conversion from primary residence to a rental property.”
“Hi Allan,
Cap gains on selling rental property: Is there a provision in the ITA that allows you to defer or ‘roll over’ the cap gains on the sale of a property IF you subsequently buy another rental property of similar characteristics i.e. sell your rental and use the funds to buy another rental in the same neighborhood, with the same SQ footage, at or around the sales price of the first property.”
Hi John,
No, there is no such provision available.
“My son wants to get into the rental market to build up his wealth. He has purchased a duplex which is in need of renovations. The basement needs a kitchen makeover. There are no cabinets or appliances in the kitchen. His plan is to renovate the basement immediately and get rental income asap. The main floor kitchen also needs cabinets and appliances. His plan is to temporarily live on the main floor while he does the renovations to both floors. His future plan is once the renovations are complete on the main floor, he will move out and rent the main floor. This generates several questions. 1. If he plans on eventually renting out both floors, can he order all the appliances at once and enter them as Class 8 and take advantage of the half year rule for all appliances on this years income tax. 2. The same with the cabinets. Can he order all cabinets now and add them to Class 1 along with the purchase price of the property to take advantage of this year’s income tax. Next year !
there will be a new roof, some windows, landscaping etc. Does it make a difference if he calls the main floor his principal residence for several months as long as his plan is to rent it out sometime within the following year.”
Hi Robert,
“The improvements he makes to the main floor (e.g. flooring, cabinets, walls, etc.) cannot be added to a CCA class while he lives on the main floor. When the main floor is converted into a rental property, there will be a deemed disposition at that time. The proceeds of disposition will be equal to the market value of the property on the date of conversion. Only the building portion (excluding land) of the proceeds can be added to CCA Class 1. He should hire a certified appraiser to perform the valuation.
The appliances purchased for the main floor cannot be added to a CCA class while he is living on the main floor. The market value of the appliances can be added to CCA class 8 once he begins renting the main floor. It’s likely that the market value of the appliances will be lower than the initial purchase price.”
My son, when attending his first semester of university, decided he wanted to purchase a house for the time he spent at university. He borrowed all the money from his grandfather. I, his mother, suggested that my name be on the deed as well, since he was only 18 at the time (not quite sure why we did that now, as his venture is working out quite well) He lives there full time, it is his principal residence. He has a rental license and rents out three rooms to other students. He is claiming 100% of the rent earned on his income tax every year. He will be graduating in four months, and he is planning to sell. The house has appreciated greatly (good market!), and he will be paying a good amount of capitals gains tax when the time comes. My question is, although I do not “own” part of the house, my name is on the deed, together with his. Would the CRA see this in a different light? What documents can I have at hand to prove that our ownership in this house is 100-0 (his-mine)?
Hi Jennifer,
So long as your son beneficially owned the property, and paid for all related expenses including the mortgage, then he should report the capital gains realized upon selling the home on his tax return. Your name is on title only and you do not have beneficial ownership.
Hi, where do I enter condo fees (the set monthly condo maintenance fee used to pay for the property mgmt, security services and general maintenance of building amenities etc) on the T776? I was researching online and it looks like I should be entering this under “other expenses” line 9270. Please advise if this is correct. Thanks.
Hi Jamie,
Enter condo fees incurred on line 8871 or line 9270 of form T776.
Hello,
I have a rental property that I had completed repairs to after my tenants vacated, and while it was listed for rent. After not finding a tenant in a two months period I have decided to sell the unit.
1. Are the repairs completed while the unit was vacant and advertised for rent deductible as current expenses on the T776.
2. After I decided to sell and listed the unit, are expenses such as utilities and property tax deductible on the T776 form, or are they added to the cost of selling the unit.
Thank you!
Hi Amy,
The answer to both questions is no. The repairs should be added to the ACB (adjusted cost basis) of the property and the expenses such as utilities and property taxes are not deductible.
I bought a property in 2010, rented it and since then I have not claimed any CCA. Just paid tax on net income each year. Is it possible now to claim CCA for appliances after all these years to reduce my net income to zero? What value would I assign as beginning of year value? When I sell the property or make it my principle residence would I have to claim recapture of the CCA that I used to depreciate my appliances? keep in mind the value of these appliances maybe zero by the time I sell or move in.
Hi Roger,
You can claim CCA in the current year on appliances purchased in a previous year. The technically correct way to do this is to amend the tax return for the tax year in which the appliance was purchased to report the purchase amount. However, for simplicity, record the appliance purchased in the current year as an addition and claim CCA accordingly. The CCA rate for appliances is 20%, but only 10% can be claimed in the year of purchase.
When you sell your home, carve out the market value of the appliances from the selling price of your home, so that you can report this as the proceeds from sale of the appliances. Check online for a reasonable estimate of fair market value of your used appliances at the time of sale.
Alan, as many have said – AMAZING SITE! Thank you for this wonderful resource.
I just yesterday purchased a home outright (using a HELOC on my home) for my student son attending university. The plan is that he will not pay rent, but the payments from the other tenants will cover the HELOC interest, property tax and utilities. I have received mixed advice about reporting rental income. Am I the only one that can report this income, or is there any way for my son to report it (since he has only summer student income)? Am I the only one that can report expenses, or could he? I think that it would be beneficial if he claimed both (if this was even possible) – or is my thinking flawed?
Thanks in advance!
Korynne
Hi Korynne,
It depends on who the beneficial owner of the property is. If you gifted the funds for the down-payment so that your son could acquire an investment property, and if the rents belong to him, then he is the beneficial owner. This means that your son will have to include the rents collected and expenses incurred in his income. He will also have to include the capital gain realized on a future sale in his income at that time. I am assuming that your son is 18 or older so that the attribution rules do not apply.
You say the following CCA percent (%) rates apply:
• 4% for residential properties.
• 6% for commercial properties.
Can you please define residential properties (over 4 residential units?) versus commercial properties?
Thank you!
Hi Harry,
For tax purposes, residential properties includes multi-family properties, regardless of the number of units. A large apartment building would still be considered a residential property for CCA purposes, and subject to a 4% CCA rate.
i sold a van used for my rentals (for scrap $75) still have $1200 cca left. Do l claim as a capital loss? Do i have to claim back the cca i’ve claimed in previous years?D
Hi David,
Claim a terminal loss, which is calculated as the difference between the selling price ($75) and the UCC ($1,200). You do not have to recapture previously claimed CCA in this case.
Very, very useful resource here!
My question is pertaining to a new rental property I have taken possession / management over. As a result of an terminally ill relative (who now has died) I took over full management of a property. This included assuming the mortgage payments (paid from my bank account), completed renovations and eventually rented the property out. This was done in anticipation of the death of the relative whom intended to leave the house to me upon their death. These expenses were incurred in 2016. The family member has now passed and the deed was transferred to me in 2017.
Can I claim the expenses for this property as I would for the other properties I own which have the deed is in my name and how do I deal with the CCA, if any on the property for the period of time the deed was not in my but I paid the mortgage and all related expenses?
Hope this question makes sense.
Thanks in advance,
Hi Jayson,
You cannot claim these expenses nor can you claim CCA if you did not have beneficial ownership until your friend passed away.
If you can somehow prove that your friend transferred beneficial ownership of the property to you before he/she passed away, then you can write-off the expenses from rental income, and claim CCA. The basis for determining CCA is the fair market value of the property (excluding land) as of the date on which beneficial ownership was transferred to you.
How do we make entries for reduction in the UCC when we get a new rental property tax rebate? There is no place in the form T776 for the same
Hi Venkat,
Enter the amount of the reduction in UCC onto Page 3, Part A, Column 4 of form T776.
My wife has a condo for rent u see her name only. I have also one under my name.
Can we each deduct a % of our internet and cell phone bill? Is 25% reasonable?
Since we have two condos, can we each deduct motor vehicle expense? What is a reasonable $ per km we can deduct? We do about 300km-500km each for inspection, condo meeting and cleaning , new tenant hand over keys, renovation.
Hi Li,
You can claim a portion of your cell phone and internet bills as a deductible expense. Review your call history and time spent on the internet for your rental operations to determine a reasonable % to apply.
You can also claim a portion of your vehicle expenses. The deductible % is equal to the KMs you drove in the year for rental operations divided by the total KMs you drove in the year. This deductible % is applied to your actual vehicle expenses.
I purchased a new house in 2007 as principal house for $250,000. I bought new principal house in 2012 and started rental on old house and was appraised for this house was $300,000. My accountant didn’t enter these amount etc, only income and expenses in T776 for 2012. I didn’t claim any CCA & principal to rental etc till now nor I don’t want to claim it.
In 2016, I installed Air conditioner to rental house to get more chances of renter and done some capital improvements in basement. Should I have to report these expenses now or later at the time of selling?
Should I have also to report appraised building cost before reporting above expenses? Can I report only above capital expenses only?
Thanks in advance
Hi Peter,
The renovations and air conditioner purchase should be added to the cost of the property. The cost amount of the property for capital gains purposes is $300,000 (FMV on date of conversion from primary residence to rental property).
I understand that you do not want to claim CCA, and that’s okay. In this case, do not complete Part A (CCA Chart) of form T776. Instead, report the capital gain (after factoring in the renovations and a/c purchase) when the property is eventually sold.
I live in the lower half of a duplex and plan on moving this year and renting the lower apartment out. The accountant I was going to hire for taxes and financial advice told me that for up to 2 years prior to renting it out, any repairs I do to get my apartment or the building in shape for renting are 100% deductable. CRA tells me they never heard of such a thing and I can only write off “soft costs” not any repairs, not even painting a month before leaving the unit to get it ready. Is this true? Does it have to be rented before I can claim any painting or repairs done on it? thank you
Hi, Karen. If you have made your apartment available for rent (e.g. by advertising it for rent), then you can deduct repairs expenses. If you are making major repairs, then these are classified as improvements and are added to the cost of the property and are not deductible.
We purchased a home in July 2016 and rented it out using a short-term rental site. We occupied the house ourselves periodically throughout the portion of the year that we owned it, when we did not have renters occupying it. We did not purchase the house as a rental property, but rather rented it out on a short-term basis as we were locked into a lease elsewhere ourselves when we purchased it. We are moving into the house next month.
My question is can we deduct 100% of the allowable expenses incurred from the time we purchased the house to Dec 31st, since it was occupied by renters some of the time, and by us, some of the time intermittently over the period? Or should we calculate the days we spent in the house and reduce the expenses claimed for the prorated amount? We are designating the house as our principal residence.
Many thanks.
Hi, AJ. You cannot claim 100% of the expenses. Pro-rate the expenses by the number of days that the property was rented over the year.
I sold my duplex after owning it for over 40 years. I want to claim improvements to the property ie new brick and aluminum facade, balconies, windows, kitchens, roof etc. but I have not kept any receipts from years ago. Can I still claim them regardless of not having any receipts, the proof still exists if you look at the building.
Improvements increase the adjusted cost basis of your property. CRA’s policy is that you must have copies of the receipts to claim improvements. However, you can have the improvements appraised to determine their estimated cost if you don’t have any other documentation.
Hi Allan, Great Forum.
My first year or 2 of investing, I ended up spending a LOT of money on Real Estate Coaching programs ($25,000 +), and other educational material. It took me a little while to understand that majority of the information is available online and through your network. Regardless, it took me some time to purchase investment properties and finally start recouping on my investment. However, its a little frustrating that the after tax income I have made from my rentals have STILL not overcome my initial investment in education and coaching programs (which i paid with AFTER tax dollars). My question to you is, is there any way possible to deduct expenses such as a coaching program or a consultation with a real estate investor or books/courses etc? Do I have to an investment property in order to deduct these expenses or can I do so before? Just looking for guidelines as the info out on the web is mixed and in the end, confusing. Thanks in advance. Kumar
Hi, Kumar. The Canada Revenue Agency’s position is that coaching and real estate investing courses are a personal expense and are not deductible for tax purposes.
Hi Allan and Team!
I purchased a home in BC, have 100% ownership of it. We have long term tenants in there; I do repairs and maintenance to the house and I know that my labour is not tax deductible but can I claim my wife’s help (cleaning, yard work) at reasonable rates as current expenses since she is not on the house’s title? She has a sole proprietorship set up in her name; can she claim the income within the Sole Proprietorship or would she have to claim casual labour (not preferred). Alternatively, can I set her up as a property manager and pay her fees?
Thank you for sharing your tax wisdom with us Landlords!
Hi, Maros. If your spouse has multiple customers that she’s performing property management / repair / cleaning services for, then she will be treated as an independent contractor and you can pay her a reasonable fee for her services. Otherwise, you have to pay her as an employee, which means that you will have to deduct payroll taxes from her paychecks.
My wife and I have 2 condos for rent. 1 condo split between us ( 50/50), the other one my wife own 100% . does she need two separated T776 to fill the income and expense or use only one T776 to fill two properties with different percentage of ownership? thank you so much for your help.
Hi, Tony. She will have to prepare a separate form T776 for each rental property, for a total of 2 forms.
Hi Allan,
Fabulous Forum here, very insightful.
I have a rental property sold via Agreement for sale., whereby I still have title until the underlying debt owed to me has been paid back. The debt paid back to me involves a principle and interest component amortized over 30 years.
My questions:
1) i have received an option deposit which go towards the amount owing and towards the buy back. Is this taxable?
2) The amortization payment by the buyer includes a principle and interest portion. The principle portion keeps accruing reducing the debt. Am I correct in my assumption that from my point of view, only the interest portion is taxable as income for me.
3) What would apply if I seller financed the property at Principle/Interest payments amortized over a period? Is only the interest payment taxable?
Hi, Kshitz. Thanks for the feedback. My responses are as follows:
1. Option deposit is taxable in the year it’s received
2. Interest portion is taxable, not repayment of debt. However, if this is a ‘lease to own’ arrangement, then the entire payment is taxable to you (principal plus interest). It’s considered as rent.
3. For seller financed properties, there’s a capital gain to be recorded in the year of sale. However, you can defer up to 1/5th of the gain each year to a maximum of 5 years to the extent that the buyer has not paid the debt owing to you in full. The interest portion is also taxable.
From my understanding, and expenses to prepare a rental property for sale are included in the ACB of the property. If I purchase tools/equipment to complete work on the house while preparing for sale (I know I can’t charge for my personal time), can I include the cost of the tools/equipment in the acb of the house?
Hi, nlitchfield. Tools and equipment are capital assets and cannot be added to the cost of the property.
I had to replace the hot water tank in my rental unit, the unit has been rented for 5 years prior to replacing the hot water tank. Do I include this as a capital replacement and depreciate it or as an expense. If it is CCA which class do I use?
Hi, Carole. It’s a Class 8 asset. It should be depreciated.
If I receive rent from a basement apartment and I do not own the property but the landlord is allowing us to keep the money in exchange for taking care of his property and replacing anything in the basement apt at our cost. How do I claim the income even though it is not my property.
Hi Roy, you will have to report the profit you made from this arrangement, which is equal to the rent received less the repair expenses that you pay for. The profit should be reported on form T2125, which should be attached to your personal tax return.
Hi Allan,
What a great resource your site is !! I rented out my property in Ontario in 2016 and my tenant completely ruined the property in the 6 months she lived there. I spent close to 12K in 2016 and another 5K in 2017 to get house back in order. For the net income in 2016 (I requested NR4 performa from CRA and I remit 25% of rent that I receive), I had a huge negative net income (after deducing the 6 month rent that I received).
– All the expenses including contractor’s hourly pay, material cost, cost to replace carpets, cleaning, painting were claimed as expenses. Did I do that right or should I have depreciated some of those costs/items like hardwood floors (to replace carpet)?
– Since I had huge negative income/losses in 2016, can I add that negative to the positive rental income in 2017? Can I carry-forward the losses to further years?
– For 2017, other than the 5K that I paid as expense to bring the house to order, I am claiming property insurance, property tax as my expenses. Is that okay?
– I travelled from US to Canada to oversee and spend time to see the work being done. Can I claim travel expenses?
– In next 5 years, I intend to sell the property. The fact that I have spent so much money to bring the house to order and the property value won’t appreciate much from the time I bought it, to the time I will sell it (+ amount that I paid), how I can prepare myself to avoid paying any tax to both CRA and IRA.
Thank you in advance for all your help,
Neha
Hi Neha, thank you for your kind feedback. I’m sorry to hear about your bad tenant! Some of the costs that you mentioned, such as new floors should be added to the cost of the property and depreciated. For non-residents, rental losses cannot be carried-forward. Property insurance and property taxes can be deducted and so can reasonable travel costs to supervise repairs / manage the renovations. If you sell the property for less than the purchase price + cost of renovations, then you will have a loss and you won’t owe any tax.
Hi Madan,
I have been following your youtube videos and almost read all of the post you have posted. I see that you are are still answering very detailed answers for each questions. I have a specific question that i cant find answer online.
I have full time job and i earn income.
Lets say i borrow money to buy real estate. I use the assets that i have in my primary resident to buy a rental property.
Is there a way to use the capital cost allowance to cancel out my rent and use the interest paid to offset my earned income.
Lets say i borrow 600k to buy rental property. I rent the property for 36k per year. My CCA per year is 4% = 24k + City tax 6k + other expenses 4k. This will cancel out my rental income.
Meantime, i make lets say 100k from my full time time. Can i subtract the interest paid for the 600k(@3%) = 18k from my income. ie, 100k – 18k = 82k (ie saving of about 6k in tax)
This may be a very specific question and i will be glad to see you in person if this need further discussion. I would like to see if this makes sense and if yes, i will be happy to meet you.
Hi Siva, the interest paid on money borrowed to purchase a rental property is deductible from rental income. If the rental property produces a loss, then the loss can be offset against your employment income from your full time job.
Please note that depreciation cannot be used to create a loss or increase a loss from a rental property. In other words, a depreciation deduction is limited to reducing a taxable profit from a rental property to $0 and not lower.
I have two townhouse condos that I rent out in Calgary. They have lost substantial value since they were purchased, so I am planning on depreciating the units. Do you have any idea what percentage I should allocate to the land because there is no information available?
Hi Judy, you will have to ask a realtor or an appraiser to provide you with a breakdown of the purchase price between land and building.
Hi, thank you for your excellent site. I wanted to get your take on a quick question regarding a new appliance purchase in a rental property. I’m aware that CRA generally considers purchases of new appliances to be a capital expense which gets added to ACB rather than a current expense. However, a classic interpretation bulletin IT-128R states: “Maintenance or Betterment – Where an expenditure made in respect of a property serves only to restore it to its original condition, that fact is one indication that the expenditure is of a current nature. This is often the case where a floor or a roof is replaced. Where, however, the result of the expenditure is to materially improve the property beyond its original condition, such as when a new floor or a new roof clearly is of better quality and greater durability than the replaced one, then the expenditure is regarded as capital in nature.” In my case, I just purchased a rental condo and the same day I bought it, the very old dishwasher broke down and needed to be replaced. Could I not take the position that because my purchase of the new dishwasher was merely to RESTORE THE PROPERTY TO ITS ORIGINAL CONDITION rather than improving it (the purchase price of the condo theoretically was meant to include a working dishwasher as it was not known to be broken) that I could write off the full cost of the dishwasher purchase as a current expense?
Hi John,
The new dishwasher will very likely be of better quality, have more features than the old one. As a result, the dishwasher will be treated as a capital asset.
Thank you very much for the reply. Quick follow-up: I plan to move into the property in 5 months to occupy it as my principal residence. When the change in use and resulting deemed disposition occurs, I plan to argue that no appreciation in value beyond my purchase price occurred in that short span of time. Do you then agree that, on my 2019 return due in April 2020, I’ll be able to recoup the capital costs that I’ll add to my ACB this year (land transfer tax, legal fees, now a new dishwasher) as a terminal loss since my ACB will exceed the FMV (which will equal my purchase price?
Thanks in advance, really appreciate your help.
Technically, you can claim a terminal loss if the deemed proceeds are less than the UCC (un-depreciated capital cost). However, I wouldn’t ‘push the envelope’ or else you risk a tax audit.
I own a rental property and have done renovations this year, am I able to claim the expenses? I have heard that you may not be able to do this if a family member is living in the dwelling?
My wife and I purchased a duplex in 2014. From day one, we have lived in the lower floors of the duplex and rented out the upper floor. The reason for renting the top floor is to help with the mortgage. Someday, when our kids are older, we are thinking of occupying the whole duplex for ourselves and our kids. I understand that, when that happens, the change in use may result in a deemed disposition, and we may have to pay tax on the capital gains for the currently-rented floor.
Now, I also understand that, under some conditions (in T4036), the CRA will not assume that there has been a change in use, and we wouldn’t have to pay capital gains when we repossess the entire duplex (though we will have to pay them when we sell the house). One of those conditions is to not have ever claimed CCA on the rental portion. And there’s the problem…
I did not know about the CRA practice regarding deemed disposition, so I have been claiming CCA on the rental portion every year. (Part of the reason is that I was used to the US tax system where CCA is always claimed and there’s no principal residence exemption.) I was wondering if it is possible for me to amend the last four years of tax returns in order to *not* claim CCA and avoid paying capital gains if I change the use from rental to residential.
The information I’ve seen on amendments isn’t clear, and in some cases, there appears to be a steep penalty for amending an election (something like $8,000). Is it possible to amend my mistake?
Hi V,
Amend the previous 4 years of returns to cancel the CCA claimed on the property. If there is an increase in tax owing as a result of the elimination of CCA, then you will owe the additional tax plus interest. You will not be penalized for making these adjustments, assuming you have been filing your returns on time.
Hi, quick question on CCA. I understand on personal tax (776) form you can only deduct CCA rate to bring the rental income to 0 but cannot increase a loss by using CCA. Do the same rules apply for rental corporations? I created a corporation and used it to purchase 1 commercial rental unit, cause its first year in business, I actually have a loss and can I still amortize the CCA rate even though it increases the rental loss?
Thanks,
The same rules apply to a Corporation that owns rental property. CCA cannot be used to increase a loss or create a loss.
I rented my parents house out since they don’t live in Canada. Who should report the rental income? Me? or my parents?
Thank you
Hi Lily,
Your parents (owners of the house) are supposed to submit a monthly tax equal to 25% of the monthly rents collected. They can claim a refund for some or all of the tax payments made in the year by filing a Section 216 Non-Resident Return with the CRA. On this tax return, they will report the rents collected, expenses incurred, and taxes remitted.
Hello,
I am hoping you can help clarify a question in regards to owning rental property. My spouse and I co-own 2 rental properties. When doing our income tax returns, do we share rental income 50/50, expenses 50/50 and Capital Cost Allowance 50/50 for every year of our returns? I would think the answer to this question would be yes. However, I just noticed that on my last few returns, who were done by a ”professional”, the income, expenses and CCA were not allocated 50/50. Is there ever a time where the 50/50 would not be the case, as to when one spouse may pay higher taxes and need more of the expenses to write off? I am hoping you can help clarify this for me. Thank you in advance.
Hi MC,
If you both jointly own the property and you both equally contributed money to the purchase of the property, then the income and expenses should be split on a 50/50 basis between the two of you. However, CCA is treated differently. Each partner reports his/her share of the cost of the property in Area A of Form T776 (i.e. 50/50). Then each partner claims CCA individually – the amount of CCA claimed does not have to be the same.
For example, let’s assume that a rental property was purchased for $120,000. Of the $120,000 purchase price, $100,000 relates to the building and $20,000 relates to the land. This means that each partner should add $50,000 to Class 1, Area A, of Form T776 for ‘building’. The CCA rate on class 1 assets is 4% (or 2 % in the year of acquisition). As a result, each partner can claim up to $2,000 of CCA in this example. However, the amount claimed does not have to be the same. For example, one partner could claim $1,000 of CCA, while the other partner could claim $2,000 of CCA, so long as the maximum amount of $2,000 of CCA for the year is not exceeded.
It says that I cannot use the land portion as a cca. How do I establish the land portion of the total value of the home? I paid 120,000 for the home. How do i [possibly figure this out. I cannot find any empty lots in my area to compare with.
Hi Sean,
You should consult with a certified appraiser or real estate agent in your area to help you determine the land value.