Rental Property
In Canada, rental income is subject to taxation. Rental income refers to the money earned from renting out a property you own, such as a house, apartment, or commercial space. The taxation of rental income is regulated by the Canada Revenue Agency (CRA), which is the country's tax authority. Here are some key points to consider regarding rental income tax in Canada:
Taxable Rental Income Rental income is considered taxable, and you must report it on your annual income tax return. This applies whether you are a resident or non-resident of Canada. It includes rent, any additional amounts received for services or amenities, and any other payments related to the use of the property.
Deductible Expenses You can deduct certain expenses related to earning rental income to reduce your taxable income. Allowable deductions include mortgage interest, property taxes, insurance premiums, repairs and maintenance costs, property management fees, advertising expenses, and utilities paid by the landlord. However, capital expenses (e.g., major renovations) are generally not deductible, but they may be eligible for depreciation or a capital cost allowance.
Net Rental Income To calculate your net rental income, you subtract your deductible expenses from your rental income. If your expenses exceed your rental income, you will have a net rental loss. Net rental income is added to your other sources of income (such as employment income) and taxed at your applicable marginal tax rate.
Rental Losses If you have a net rental loss, you can generally use it to reduce your taxable income from other sources. However, there are specific rules regarding the deductibility of rental losses, including restrictions for rental properties that are primarily for personal use.
Capital Gains When you sell a rental property, any profit you make is generally considered a capital gain and subject to capital gains tax. The taxable portion of the capital gain is calculated as 50% of the gain. There are additional rules and exemptions available for principal residences.
Filing Requirements If you earn rental income in Canada, you are required to file an annual income tax return. The specific form used depends on your residency status and the nature of your rental activities (e.g., rental of real estate vs. rental of personal property).
As a tax professional we can provide personalized advice based on your specific circumstances.