# To claim or not to claim - Rent



## investordude (Dec 14, 2012)

Hi 

I currently rent my basement to a family member (I few hundred dollars below what the rental market would ask for).

Do I have to claim this as income even though it's a family member? Also, if I do claim this as income, what expenses can I claim 100%? Property taxes, interest? etc. Or does have to be % based on the living space that is rented?

Thanks everyone for your time and consideration.


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## Mukhang pera (Feb 26, 2016)

I'd say it's taxable income. I am aware of no family member exclusions. 

As for deductions, it would be pro rata. If the rented area is 40% of the whole, for eg., then 40% of the common costs such as property tax, mortgage interest, etc., is deductible.


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## Davis (Nov 11, 2014)

If you're renting it below market rent to a family member, you're probably making a loss after you deduct your expenses. When I was a landlord many years ago, there was a rule that you can't deduct those losses from other income because you're not treating this as a business. So you do not report the income. 

Check CRA's Rental Income Guide to make sure there hasn't been any change to this.


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## Eclectic12 (Oct 20, 2010)

+1 on reporting the income, family members or not.

As for the percentages, when I rented a couple of rooms decades ago, it was based on either % by room or floor space. The one cavaet was that to keep the primary residence capital gains exemption, none of the CCA items should be claimed.

A quick check of the Tax Tips web site suggests the same recommendation is current.
http://www.taxtips.ca/personaltax/propertyrental/rentalexpenses.htm


Cheers


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## Davis (Nov 11, 2014)

Found it in CRA's Guide here:



> Renting below fair market value
> 
> You can deduct your expenses only if you incur them to earn income. In certain cases, you may ask your son or daughter, or another relative living with you, to pay a small amount for the upkeep of your house or to cover the cost of groceries. You do not report this amount in your income, and you cannot claim rental expenses. This is, in fact, a cost-sharing arrangement, so you cannot claim a rental loss.
> 
> If you lose money because you rent a property to a person you know for less money than you would a person you do not know, you cannot claim a rental loss. When your rental expenses are consistently more than your rental income, you may not be allowed to claim a rental loss because your rental operation is not considered to be a source of income. However, you can claim a rental loss if you are renting the property to a relative for the same rate as you would charge other tenants and you reasonably expect to make a profit.


I think that it means that you do not report the income you receive from a family member or someone you know if:
1. It is small, or 
2. Reporting the income and deducting expenses would generate a loss.


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## investordude (Dec 14, 2012)

thanks guys.

Just to add some context. I charge $700 a month for rent when the market charges $900 a month for similar type of basement living spaces. So it's not too low from market value. Also, after quickly doing some math, I won't generate a loss but I'm about $1,200 a year of net rental income (after all expenses). 

So I guess this $1,200 will be taxed? Even though this money is from a family member?

Thanks again!


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## Eclectic12 (Oct 20, 2010)

???

For the business owner selling widgets, whether the customer paying is a family member or not .... the income will be taxable. I am not sure why you are thinking a family member paying the $$$ makes a difference to the gov't.


Bottom line is that rent is being collected.


Cheers


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## Davis (Nov 11, 2014)

^ + 1.

The question of a personal relationship (family or otherwise) will come up if you are renting below market rent and claiming a loss. CRA would want to know why you are giving someone a break if it means you lose money.

If you're making money, then you have to report it. The personal connection means that you're making less money than you would if you rented to someone else.


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## kcowan (Jul 1, 2010)

investordude said:


> Just to add some context. I charge $700 a month for rent when the market charges $900 a month for similar type of basement living spaces.


Are you sure the difference cannot be explained by CCA? You better believe that the market rates include it.


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## bds (Aug 13, 2013)

Thanks for posting this, I'm in a similar situation. When calculating whether I'm operating at a loss or not, do I include everything in expenses except the principle of the mortgage?

-Mortgage interest
-Property tax
-Utilities (hydro, water, gas)
-Internet (shared, had to be upgraded when they moved in)
-Home repairs

If that's correct, I'm operating at a slight loss. So according to that link Davis posted, I do not have to report the income? That's great.


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## kcowan (Jul 1, 2010)

bds said:


> Thanks for posting this, I'm in a similar situation. When calculating whether I'm operating at a loss or not, do I include everything in expenses except the principle of the mortgage?
> 
> -Mortgage interest
> -Property tax
> ...


Yup. And insurance, TV cable, lawn maintenance/snow removal. Just make sure you can support the prorated share.

Do not include any improvements in your living space.


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## twa2w (Mar 5, 2016)

The question here in terms of claiming or not, I think is whether the living space the relative lives in is self contained. If the relative is living with you and has a room in the basement and is helping with expenses, and you have access to the basement as well, then I would not claim.(even though you may not venture into the basement and he does not venture into your area.

If the relative is living in a self contained basement unit, with a separate entrance, that you could rent to a stranger, then I would say the income should be claimed.


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## Davis (Nov 11, 2014)

twa2w, could you point out to us where in the CRA Rental Income Guide where that distinction is made, please?


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## kcowan (Jul 1, 2010)

twa2w is claiming that many airbnb revenues do not need to be claimed!


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## twa2w (Mar 5, 2016)

kcowan said:


> twa2w is claiming that many airbnb revenues do not need to be claimed!


With air bnb, you are not dealing with a relative. CRA has a very clear section on relatives sharing expenses. Will have to look it up. It was posted on a thread in this forum not too long ago ad well.


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## twa2w (Mar 5, 2016)

Also note that I said sharing expenses. If there is a lease or a tenancy agreement, and the relative is paying rent then it would be income regardless of the living situation.
I was trying to give the OP a clue


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## twa2w (Mar 5, 2016)

T4036
Applicable section:
Renting below fair market value

You can deduct your expenses only if you incur them to earn income. In certain cases, you may ask your son or daughter, or another relative living with you, to pay a small amount for the upkeep of your house or to cover the cost of groceries. You do not report this amount in your income, and you cannot claim rental expenses. This is, in fact, a cost-sharing arrangement, so you cannot claim a rental loss.

If you lose money because you rent a property to a person you know for less money than you would a person you do not know, you cannot claim a rental loss. When your rental expenses are consistently more than your rental income, you may not be allowed to claim a rental loss because your rental operation is not considered to be a source of income. However, you can claim a rental loss if you are renting the property to a relative for the same rate as you would charge other tenants and you reasonably expect to make a profit.


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## investordude (Dec 14, 2012)

Thanks for all the responses so far!

I have one more question. I repaired my roof last year - so brining it back to it's original condition, am I allowed to claim a portion of this for expenses? Even though I'm renting out a basement apartment?


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## dbw (Dec 8, 2011)

Claiming rental income and expenses on tax return is not straight forward and simple, there's a lot of rules on what items qualify and what don't.

To claim or not to claim is based on the answer of this simple question: Does your family member who rents the basement claim the Rent payment on their income tax return? If the answer is yes, then you have to file rental income. If they don't claim their Rent payment, then there's really need for you to claim the Rent income.


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## VideoTaxJoe (Jun 24, 2015)

dbw said:


> To claim or not to claim is based on the answer of this simple question: Does your family member who rents the basement claim the Rent payment on their income tax return? If the answer is yes, then you have to file rental income. If they don't claim their Rent payment, then there's really need for you to claim the Rent income.


This is dangerously incorrect. What you are talking about relates to the probability of getting caught. If you are making money off a rental to a family member, it is irrelevant whether they are claiming it or not....and the only way they would be claiming it anyways would be if they were using as an office space or for some other income generating activity as opposed to just living in it. What it really comes down to is whether you are renting it for fair market value(FMV).

Roof repair: Yes, you've got an argument that a portion of the repair cost is deductible (if you are renting for FMV), however, if it puts you into a large loss position, be prepared to do some explaining to CRA.

Fair Market Value Rent: There is some lee-way as to what constitutes FMV rent. For example, would you lease the place to someone that has an unknown or bad history for the same price as you would for someone with a good history? You may be able to argue that FMV for a non-related but trusted or long-term renter is lower than the advertized rate on comparable properties. Again, some explaining may be involved, and the acceptable rate gap will likely not be that great.


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## Spudd (Oct 11, 2011)

VideoTaxJoe said:


> This is dangerously incorrect. What you are talking about relates to the probability of getting caught. If you are making money off a rental to a family member, it is irrelevant whether they are claiming it or not....and the only way they would be claiming it anyways would be if they were using as an office space or for some other income generating activity as opposed to just living in it. What it really comes down to is whether you are renting it for fair market value(FMV).


Actually, in Ontario at least, you can put your rent on your income taxes and if your income is low enough, it generates a tax credit for you. Even if it's just for living. I don't know what province the OP is in.


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## VideoTaxJoe (Jun 24, 2015)

Spudd said:


> Actually, in Ontario at least, you can put your rent on your income taxes and if your income is low enough, it generates a tax credit for you. Even if it's just for living. I don't know what province the OP is in.


Good point.


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## dbw (Dec 8, 2011)

VideoTaxJoe said:


> This is dangerously incorrect. What you are talking about relates to the probability of getting caught. If you are making money off a rental to a family member, it is irrelevant whether they are claiming it or not....


You're partially correct. 
I just confirmed it with a friend who's an accountant, his son moved back with the parent to save money, he gives his parents $500 every month, he doesn't file it as rent payment and the parent doesn't claim it as rental income. They all agreed that he "contributes" to his parents to help out (i.e. can be referred to as personal gift), so technically there's no legal issue with taxes.
As long as both sides concur that it's not rent payment, then no issue.


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