It's Your Money  

Dealing with rental income on your tax return

Rental income and taxes

A recent stats Canada report noted that almost 1.4 million Canadian households have property rental income.

As a landlord, it is crucial to ensure that you are properly filing your rental property income taxes to avoid any legal or financial consequences.

With the tax filing deadline (for most people) fast approaching, we will discuss the steps that you should follow to properly file your rental property income taxes:

Step 1: Keep track of all income and expenses

The first step to properly file your rental property income taxes is to keep track of all your income and expenses. This includes rent received from tenants, as well as any expenses associated with the rental property, such as repairs, property taxes, and mortgage interest payments.

To keep track of your income and expenses, it is recommended to use a rental property management software or a spreadsheet. This will help you accurately track all financial transactions related to your rental property, and ensure that you have all the necessary information when it comes time to file your taxes.

Step 2: Determine your net rental income

Once you have all your income and expenses recorded, you can determine your net rental income.

To calculate your net rental income, subtract your total expenses from your total rental income. If your expenses are greater than your rental income, you will have a rental loss, which can be used to offset other sources of income on your tax return.

Step 3: Declare your rental income on your tax return

Once you have determined your net rental income, you must declare it on your tax return. You will need to complete Form T776, Statement of Real Estate Rentals. This form is used to report your rental income and expenses to the Canada Revenue Agency (CRA).

If you have a rental loss, you will still need to complete Form T776, but you can also use the loss to reduce other sources of income on your tax return. This can help reduce your overall tax liability.

Step 4: Claim your rental expenses

As a landlord, you are entitled to claim a variety of expenses related to your rental property. Some common expenses include:

• Property taxes

• Mortgage interest

• Repairs and maintenance

• Insurance

• Utilities

• Property management fees

• Advertising and marketing

• Travel expenses related to the rental property

To claim your rental expenses, you must have receipts or other documentation to support your claims. You can deduct these expenses from your rental income to reduce your overall tax liability.

Step 5: Be aware of capital gains tax:

If you sell your rental property, you may be subject to capital gains tax. Capital gains tax is a tax on the profit you make when you sell an asset, such as a rental property.

To calculate your capital gains tax, you must determine your adjusted cost base (ACB) and your proceeds of disposition. Your ACB is the total cost of the property, including the purchase price, any renovations or improvements, and any legal fees or closing costs. Your proceeds of disposition are the amount you received from the sale of the property.

If your proceeds of disposition are greater than your ACB, you will have a capital gain, which is subject to tax. If your ACB is greater than your proceeds of disposition, you will have a capital loss, which can be used to offset other sources of income on your tax return.

It is important to note that if you are a non-resident of Canada and you sell your rental property, you may be subject to withholding tax. The amount of withholding tax depends on the value of the property and the type of property.

Properly filing rental property income taxes is crucial for landlords. By keeping track of all income and expenses and filing accurately each year, you can ensure that you stay onside of Canadian tax laws and may even have some capital losses to reduce your overall tax bill. If you are thinking about becoming a landlord for the first time, speak to a financial planner to determine the tax consequences and how it will fit into your overall financial plan.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

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About the Author

Brett has worked in the financial advice industry for over 15 years and is designated as a chartered investment manager(CIM) and certified financial planner (CFP).

In 2014, Brett was appointed to the board of directors of FP Canada (the national professional body for financial planning) and spent seven years on the board, including his final two as board chair. More recently, he was appointed to the Financial Planning Standards Board (FPSB), which is the international professional body for this industry with a three-year term beginning in April 2023.

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy-to-understand explanations of the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the national and global boards focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns or if you’d like a referral to a qualified CFP professional in your area by emailing him at [email protected].


The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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