# Renting from family question



## B77a (Apr 9, 2014)

My aunt and uncle moved into an apartment because they could not handle upkeep of their house due to their age, and had rented it out for the last 6 years. The tenant recently left leaving a fair amount of damage, dozens of small things, excessive wear and many, many hours of cleanup and a rotted out wall that was left wet likely for years. I have been doing most of the repairs myself.

I moved in to do the cleanup and repairs, and unless my circumstances change I plan on staying here for the foreseeable future. I am paying below market rent but enough to cover the utilities, property tax, insurance and about $100 extra per month (actually about at cost for winter and about 200 profit in good weather, but annualized about $100/month profit) so how does this work for tax purposes. Do they and I claim it as a regular rental where they claim the rent as income and utilities (which are in their name) and repairs (the profit for the next few years will go to repair damage caused by the tenant plus a few maintenance items such as the new furnace and roof repairs) or does the fact I am family and paying below market rent mean we can't do that or should not for some reason or there is some other form or method we have to follow? Also I would inherit this house someday so how does that affect any taxes I would pay in future, their will is written (by a lawyer years ago) but I want to avoid any estate taxes or other problems, expenses or headaches that this would cause. If I need to consult an expert who would I look for, a lawyer (what kind), a tax planner, a real estate expert?
I am in Ontario and moved here a few months ago. 

Thanks everyone for your responses


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## liquidfinance (Jan 28, 2011)

See page 16. 

http://www.cra-arc.gc.ca/E/pub/tg/t4036/t4036-12e.pdf


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## carverman (Nov 8, 2010)

B77a said:


> I moved in to do the cleanup and repairs, and unless my circumstances change I plan on staying here for the foreseeable future.


What was the cost of cleanup and repairs in labour and materials? This is an expense against rental income. 



> I am paying below market rent but enough to cover the utilities, property tax, insurance and about $100 extra per month (actually about at cost for winter
> and about 200 profit in good weather, but annualized about $100/month profit) so how does this work for tax purposes.


Are you acting as the renter and your parents as the landlord?



> Do they and I claim it as a regular rental where they claim the rent as income and utilities (which are in their name) and repairs (the profit for the next few years will
> go to repair damage caused by the tenant plus a few maintenance items such as the new furnace and roof repairs)


Rent should mean some kind of written agreement for so much per month rental of the premises from you as the tenant. 
Other expenses such as roof repair/furnace cannot be charged dollar for dollar expenses against rental income by your parents..those are capital expenses I believe,
and have to be amortized over "so many years".... and that opens up another question..do your parents want to claim depreciation on the house
against rental income?..which means at some point down the line..there will be some issues with the market value vs depreciated cost when the property is 
passed to you by your parents. 



> or does the fact I am family and paying below market rent mean we can't do that or should not for some reason or there is some other form or method we have to follow?


You are the son of your parents who can allow you to live in their house for nothing or at some reduced "rent". you can help them pay the property taxes 
and look after the utility expenses while living there.
This arrangement can be done without involving CRA and form T1776..(Rental income) which will complicate things for you and your parents *IF you plan on living in 
the home until they give it to you. *



> Also I would inherit this house someday so how does that affect any taxes I would pay in future, their will is written (by a lawyer years ago) but I want to avoid any
> estate taxes or other problems, expenses or headaches that this would cause.
> If I need to consult an expert who would I look for, a lawyer (what kind), a tax planner, a real estate expert?
> I am in Ontario and moved here a few months ago.


A home used for rental income will complicate inheritance and capital gains etc. I am speaking from personal experience as my mother used to own half of my property
last fall and this would have been more complicated for her estate once she passed on (she is 90), since half my home is my principal residence, and I have paid all the 
property taxes and utilities and upkeep to this home for the last 17 years.

Last fall, after a major health issue, my mother decided to divest her half interest in the title of my principal residence, since she has never lived with me here in Ottawa,
having her own principal residence in Toronto. We arranged to have her half interest transferred to me for the sum of $1 through her lawyer and my lawyer. 
It cost me about $300 + HST for the paperwork and the title transfer registration.
Now I am 100% sole owner of my house with no capital gains payable against my mother`s estate when the time comes.

This is my opinion..I am not a lawyer or play one on TV.


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## B77a (Apr 9, 2014)

liquidfinance said:


> See page 16.
> 
> http://www.cra-arc.gc.ca/E/pub/tg/t4036/t4036-12e.pdf


I read the paragraph, if they are losing money (presumably annually) then it can't be claimed, but what if they are breaking even or there is a small profit (once repairs are complete there would be a profit of maybe $1000 a year) but that would take 3-5 years to complete the repairs but its less then market rent. I plan on reading the entire document and hopefully it covers that, but its very dry and hard to get through so it might take me a while


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## B77a (Apr 9, 2014)

carverman said:


> What was the cost of cleanup and repairs in labour and materials? This is an expense against rental income.


Labour has been mine so no cost paid out, material cost is still under determination, the repairs are not finished yet, i have been waiting for warmer weather, but i suspect damage caused the previous tenant would end up costing 1-2k maximum. They are not interested in going after the previous tenant for this, it would be too stressful, they would rather never have any tenant again.



carverman said:


> Are you acting as the renter and your parents as the landlord?


That is correct




carverman said:


> Rent should mean some kind of written agreement for so much per month rental of the premises from you as the tenant.
> Other expenses such as roof repair/furnace cannot be charged dollar for dollar expenses against rental income by your parents..those are capital expenses I believe,
> and have to be amortized over "so many years".... and that opens up another question..do your parents want to claim depreciation on the house
> against rental income?..which means at some point down the line..there will be some issues with the market value vs depreciated cost when the property is
> passed to you by your parents.


I am confused what this paragraph means, i'll be the first to admit this tax stuff is way too confusing, what is capital expense and what is not a capital expense if roof/furnace are?
Why would they claim depreciation, houses are currently appreciating in value (till the market turns of course)




carverman said:


> You are the son of your parents who can allow you to live in their house for nothing or at some reduced "rent". you can help them pay the property taxes
> and look after the utility expenses while living there.
> This arrangement can be done without involving CRA and form T1776..(Rental income) which will complicate things for you and your parents *IF you plan on living in
> the home until they give it to you. *


*
I'm their nephew (if it matters, not sure if it does), are you saying this form T1776 is filled out with a standard rental or a family/discount rent rental?
I do plan on living here for the foreseeable future, but that can change, if i have to relocate for work or other such circumstances.



carverman said:



A home used for rental income will complicate inheritance and capital gains etc. I am speaking from personal experience as my mother used to own half of my property
last fall and this would have been more complicated for her estate once she passed on (she is 90), since half my home is my principal residence, and I have paid all the 
property taxes and utilities and upkeep to this home for the last 17 years.

Last fall, after a major health issue, my mother decided to divest her half interest in the title of my principal residence, since she has never lived with me here in Ottawa,
having her own principal residence in Toronto. We arranged to have her half interest transferred to me for the sum of $1 through her lawyer and my lawyer. 
It cost me about $300 + HST for the paperwork and the title transfer registration.
Now I am 100% sole owner of my house with no capital gains payable against my mother`s estate when the time comes.

This is my opinion..I am not a lawyer or play one on TV.

Click to expand...

Does this mean i need a lawyer or tax expert? How do i find such an expert if i do need one?*


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## B77a (Apr 9, 2014)

bump


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## MoneyGal (Apr 24, 2009)

Answered in post 2. Disregard post 3.


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## carverman (Nov 8, 2010)

B77a said:


> Save the receipts for the materials at least. CRA does NOT allow labour on a DIY repair project, because how much is your labour worth on an hourly basis? and you wouldn't be charging
> HST on the labour component of the repairs.
> 
> 
> ...


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## MoneyGal (Apr 24, 2009)

The aunt and uncle do not need to fill out a T1776 if they are not charging market rent. And if they are not charging market rent, they don't need to keep receipts etc. for the purposes of claiming these expenses as deductions against rent. 

The capital cost allowance (not actually "depreciation," but a tax concept designed to allow for the effects of depreciation of a capital asset over time) does not need to be claimed and should not be claimed in this circumstance, because they are not converting the asset to an income property. (They are retaining it as a capital asset, however.)

Aunt and uncle should get tax advice w/r/t to the principal residence exemption. 

Nephew should live there and pay under-market "rent" without claiming it. Aunt and uncle should not claim expenses against this "rental income," as it is not actually rental income and should not be reported. Everyone should keep good financial records if questioned by CRA.


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## carverman (Nov 8, 2010)

MoneyGal said:


> The aunt and uncle do not need to fill out a T1776 if they are not charging market rent. And if they are not charging market rent, they don't need to keep receipts etc. for the purposes of claiming these expenses as deductions against rent.


Makes sense M,G,..that's what I would be doing. The only thing is that if anyone is paying rent and decides to fill in "rent paid", "number of months". landlord and address of rent to collect OTB benefits on the ON479
form I think..that sets a paper trail for CRA, as the OTB benefit paid out will be determined by the taxable income and the rent paid. 



> The capital cost allowance (not actually "depreciation," but a tax concept designed to allow for the effects of depreciation of a capital asset over time) does not need to be claimed and should not be claimed in this circumstance, because they are not converting the asset to an income property. (They are retaining it as a capital asset, however.)


I was thinking more of the original roof not being repaired and depreciated, or the foundation leaking, or maybe the next door neighbor painting their side purple, affecting FMV.




> Nephew should live there and pay under-market "rent" without claiming it. Aunt and uncle should not claim expenses against this "rental income," as it is not actually rental income and should not be reported. Everyone should keep good financial records if questioned by CRA.


Makes perfect sense to me..until they rent it out to others.


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## B77a (Apr 9, 2014)

Thanks for your replies, the idea is i would be staying here indefinitely but for the next year or two the below market rent i am paying would go towards repairs then after wards there would be a small profit but of course still below market rent
In theory there will not be future renters, but of course anything can happen.


Is it worth calling CRA and asking any questions i have or will that just trigger audits or other problems?


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## carverman (Nov 8, 2010)

B77a said:


> Thanks for your replies, the idea is i would be staying here indefinitely but for the next year or two the below market rent i am paying would go towards repairs then after wards there would be a small profit but of course still below market rent
> In theory there will not be future renters, but of course anything can happen.
> 
> 
> Is it worth calling CRA and asking any questions i have or will that just trigger audits or other problems?


Just keep it "under your hat" as they say..this is "family business"..no need to get CRA involved. If your parents decide to rent to outsiders, then yes, they will have to declare
rental income because the renters could be claiming Ontario benefits. The renters could go to H&R Block and have them fill out ONBEN(ontario benefits)..which then asks to
fill out PART A (Amount paid for a principal residence in "2014"..line 6089 (total amount of rent paid for your principal residence) and
PART B (Declaration ...."I declare the following information about my principal residence(s) in Ontario during 2014..

Address--------------------------Postal Code----------------Number of months resident--------------------Amount paid-----------------Names of Landlords, muncipality, or supplier

So once they fill that out, CRA and Ontario have a paper trail to determine who is renting out the premises. The renters get some benefits from the Ontario gov't filling
out this form, but it is not compulsory..if you don't fill it out, they can't determine how much of the Trillium benefit to be paid, so the renters won't get it.

You, living in the premises as family, do not have to fill this out..but at the same time, you won't get the OTB, and whatever "payment arrangement" you decide to help out
your parents, that's entirely between you and your parents, who own the house.


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