# Rental income attribution for taxes



## gardner (Feb 13, 2014)

My wife and I have a rental property that we own jointly. Up to now I have been handling all of the actual work and have been reporting 100% of the income. This hasn't made any real tax difference since my wife also has a high employment income so that either of us would pay the same marginal rate on the rental income.

Next year though, my wife will be retired and will have a more modest income. It might make sense as a tax optimization to have her report some or all of the rental income in future. I am wondering if this is likely to raise questions from the CRA -- if we change the income attribution for the rental to our benefit, is the CRA going to have a hissy fit?


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## Just a Guy (Mar 27, 2012)

I'm not sure, that's why I hire an accountant, but I believe CRA likes consistency. When things change year to year it raises flags. Flags with the CRA are never a good thing. I never encourage people to try to dodge taxes, minimize them using the rules is one thing, actively trying to avoid them is another.


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## carverman (Nov 8, 2010)

gardner said:


> *My wife and I have a rental property that we own jointly. Up to now I have been handling all of the actual work and have been reporting 100% of the income.* This hasn't made any real tax difference since my wife also has a high employment income so that either of us would pay the same marginal rate on the rental income.
> 
> Next year though, my wife will be retired and will have a more modest income. It might make sense as a tax optimization to *have her report some or all of the rental income in future.* I am wondering if this is likely to raise questions from the CRA -- if we *change the income attribution for the rental to our benefit, is the CRA going to have a hissy fit*?


It shouldn't as long as you have been honest, reported your rental income regularly and any expenses each year, 
and CRA already knows that you have included your rental income and expenses (if any) each taxation year,

If your wife in retirement, decides to take over the rental income and declare it on her tax return, then CRA still know that you jointly own the rental income property and the calculations will be based on her entire retirement (and presumably lower)income. 
It is always advisable not to try and minimize or hide any of the rental income to
make the appearance that you are avoiding paying taxes on the full rental income.

That will not go well with CRA, and you and your wife could be subject to a full audit (any time in the year that the rental income declaration changes) on your income tax assessment and any taxes payable, *if the rental income is "minimized" without supporting
documentation that the tenant isn't or hasn't occuppied the rental premises from a
certain date. * 
Keep all documentation on rental income handy including any lease agreements and termination of lease agreements. 

Copies of "for rent" ads to rent out the income property and other expenses regarding the income property, including depreciation if you want to. 
Since it is not your principle residence, there is more red tape involved than otherwise. 

rental income form
http://www.cra-arc.gc.ca/E/pub/tg/t4036/

Expenses from rental income.
http://www.cra-arc.gc.ca/tx/bsnss/tpcs/rntl/bt/rprt/xpns/menu-eng.html


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## RussT (Jul 11, 2016)

It seems to me that since your wife will be retired she could take a bigger role in earning the rental income and it would then be appropriate to share the rental income for tax purposes. I think CRA would accept such an explanation if you are asked.


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## OnlyMyOpinion (Sep 1, 2013)

Technically, it is her role in contributing capital to the purchase of the rental house that determines if and how much she can/should claim of the rental income.

That said, as pointed out, it is entirely possible that you will not have an issue with the CRA. We just don't know what flags they might use and how often they change. She has been working, so her income will presumably be showing a drop even if she does begin to claim the rental, so that is helpful.

I would proceed, but I would certainly assemble data to support her contribution to the purchase of the house. If you don't have a clear accounting path then I would assemble data to support her ability to have contributed to the purchase. I.e. you say she has been working and had good income, so presumably at the very least you can summarize her T1's from years past to demonstrate that her past income was sufficient to have made the purchase. 

Note that this is a suggestion. I do not know if this would carry weight with the CRA if you were required to prove she had purchased the rental. But this is clearly not a case of you buying the house for a non-working spouse and then having her claim all the income. I would hope that the CRA has bigger fish to fry and bona-fide evasion issues to deal with.


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## Just a Guy (Mar 27, 2012)

In further thinking about this, you may consider "hiring" your spouse to manage the property for you and thus split int income that way...

Not a good idea most likely. CRA has rules about rentals and until you own a certain number (I think three, but it's been a while since I looked it up) there are very few eligible deductions (they increase after the minimum because then CRA classifies you as an investor/business, less than the minimum they don't). 

If you only own one, CRA would probably not allow a management deduction, especially to an owner. If you owned more than the minimum it would probably be allowed.


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## carverman (Nov 8, 2010)

OnlyMyOpinion said:


> T
> Note that this is a suggestion. I do not know if this would carry weight with the CRA if you were required to prove she had purchased the rental. But this is clearly not a case of you buying the house for a non-working spouse and then having her claim all the income. *I would hope that the CRA has bigger fish to fry and bona-fide evasion issues to deal with*.


The assigned purchase percentage on the rental property has nothing to do with the rental income.
These are separate as far as CRA is concerned. They are only interested in the income from
the rental and the expenses that can be claimed.

I was ust re-assessed for $147 for last years return, 11months after I submitted my return last March.
I had to pay them what I owed them..so these days they are going after the little fish (like me) to fry as well.


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## birdman (Feb 12, 2013)

Years ago I transferred a rental in my spouses name to my name in exchange for my 50% interest in our jointly held home. The value of both properties was supported by assessments, etc and the agreement was prepared and had the blessing of my accountant and lawyer. Ownership was not changed at the LTO and the agreement specifically made reference that the transfer was "for tax purposes". Never had any issue even though the income or loss in previous years was in my name.


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## OnlyMyOpinion (Sep 1, 2013)

carverman said:


> The assigned purchase percentage on the rental property has nothing to do with the rental income.
> These are separate as far as CRA is concerned.


Well its been quite a few years since I owned a rental so I may be off-base. I guess it is the eventual capital gains allocation that could be an issue then?


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## gardner (Feb 13, 2014)

carverman said:


> It shouldn't as long as you have been honest, reported your rental income regularly and any expenses each year,
> and CRA already knows that you have included your rental income and expenses (if any) each taxation year


Certainly. I have filed a duly filled out T776 "Statement of Real Estate Rentals" with all the details. That form has always shown my wife as an owner, only with 0% attribution of the reported income and expenses. All I am proposing is to change it to 50-50 or 100% hers -- or some other amount that maximizes the use of her lower marginal rate.

One issue I could anticipate is that the CRA might want to go back to prior years where the attribution was 100% mine, and see if they could have extracted more taxes if the attribution were different. While they would be unsuccessful, it would be a monumental PITA if they tried.


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## Spudd (Oct 11, 2011)

I googled and found this on an H&R Block site:
http://taxtalk.hrblock.ca/how-to-fi...l-tax/so-you-have-become-a-landlord-now-what/

Buried within the comments someone asks your exact question:

My wife and I have owned 4 investment properties for about the past 5 years. I’ve been claiming 100% of the income/losses each year on my tax form. I’m the only person who has submitted T766 forms for each property. My wife is no longer working and I would like to push some of the future income/losses over to her income tax form by changing my percentage ownership from 100% to 50/50 as a co-owner. CRA states on bulletin IT-550 “you cannot change the percentage of the rental income or loss you report each year unless the percentage of your ownership in the property changes” so my question is this – am I allowed to change the percentage ownership now to 50/50 with my wife? Do you think if I do it will trigger an audit? Do you think that if I change the percentage ownership to co-owners to 50/50 that CRA will require me to amend all my previous tax returns to show 50/50? (this amendment would result in me owing money to CRA due to less losses in some of the last 5 years). As well, all of the properties are only in my wife’s name since I am self employed and don’t want any issues if I ever had a major judgment against me to protect the equity in those properties and our principal residence. I would only make this change of ownership from 100% to 50/50 once and was thinking of changing only 2 of the investment properties in 2012 our tax forms and then the other 2 properties in our 2013 tax filings. What do you think I should do? Thank you! Mark
Comment by Mark — April 1, 2013 @ 10:58 pm
Mark – thanks for the feedback on the post. The percentage share of your ownership depends on the capital each of you contributed to the purchase of the property. So if you each contributed 50% of the capital, you would each report 50% of the income. However, if you purchased the property solely with your own funds, you would report 100% of the income. It is therefore not something you can change annually. Doing so would likely trigger an audit by the CRA. ~PC
Comment by Editor, TaxTalk — April 2, 2013 @ 7:40 pm


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## Spudd (Oct 11, 2011)

Also, to add - how long have you owned this property? If you have the paper trail for how much money you each contributed to purchase it, and you purchased it within the last 7 years, you could go back and modify all your tax returns since the purchase date to reflect the proper attribution.


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## Spudd (Oct 11, 2011)

Man, I got really into this question, LOL. Here's the final word on the matter, from the CRA's guide to rental income (bolding mine):

Who reports the rental income or loss?
The person 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.
*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 unless the percentage of your ownership
in the property changes.*

For more information on reporting rental income between
family members, see Interpretation Bulletin IT-510,
Transfers and Loans of Property Made After May 22, 1985 to a
Related Minor, and Interpretation Bulletin IT-511,
Interspousal and Certain Other Transfers and Loans of Property.


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