# How should we claim rental income?



## bds (Aug 13, 2013)

Hi, my common-law partner and I have to claim rental income for the first time this year and I have some questions.

Our situation:
-Primary residence is in my name
-Second home was purchased Sept 30 last year in both of our names
-It's a bungalow, Upstairs is rented, we are refinishing the basement while they live there
-I am an employee, made about $75k
-My partner is self employed, made about $60-70k after expenses, we haven't gone through everything yet.
-I'll be contributing about 25k to RRSP before the deadline

Questions:
-Do we claim all of the expenses since all the above ground sq ft are rented or 50% because 50% of the house's space is "used" by us?
-Should we claim the income on one of our returns, or split it half and half?
-Can we claim anything besides mortgage interest, utility bills, property tax, and repairs for the tennants' area?
-Anything else I might not be thinking of?

Thanks.


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## Spudd (Oct 11, 2011)

What's the eventual purpose of the basement? If you're planning to rent it after it's renovated, then it's part of the business and all expenses can be claimed. If you're going to use it for personal use then claim only 50% of the expenses. 

Who contributed the money towards the purchase of the rental? It should be split according to the amount of investment put in by each person. 

I doubt it, did you have any other expenses?


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## stardancer (Apr 26, 2009)

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

As mentioned above, if you plan on moving into half the home, the expenses for that half will not be considered rental; however, if you will be renting it out once it is finished, then the expenses can be considered rental expenses. Be aware that not all renovations are operating expenses; some may be considered capital expenses. Read all you can about capital expenses and capital cost allowance. You will have to decide if you want to take CCA on the house or not as you go along. I never did take CCA on my house, as quite a few of the renovations were large enough to add to the basic value of the house.


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## Mortgage u/w (Feb 6, 2014)

You claim 100% of the rental income and 100% of the expenses if the property in question is 100% rental (doesn't have to necessarily be 100% rented)

If you both own the rental property, you claim everything 50/50. If the title was registered in a different manner (example 90/10 or other), then you claim in the same proportion.


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## bds (Aug 13, 2013)

Follow up question: We took first & last month's rent when the tennants signed in 2016. Do we claim both for 2016 or only first month, then claim last month's in the year they leave, even though we took the money in 2016?


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## AltaRed (Jun 8, 2009)

bds said:


> Should we claim the income on one of our returns, or split it half and half?


You split revenue in proportion to contribution to ownership. Presumably you and your partner also pay expenses in the same proportion too. That is how ownership in a business venture is supposed to work and how CRA assesses attribution of income.


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## bds (Aug 13, 2013)

bds said:


> Follow up question: We took first & last month's rent when the tennants signed in 2016. Do we claim both for 2016 or only first month, then claim last month's in the year they leave, even though we took the money in 2016?


Can anyone answer this one for me?


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## AltaRed (Jun 8, 2009)

bds said:


> Can anyone answer this one for me?


I believe you have to claim it in the year received, just like any other revenue or expense item.


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## OnlyMyOpinion (Sep 1, 2013)

I seem to recall that the damage deposit is not counted as income, until such time (the year) it is finally used to cover the last month's rent. It is technially a deposit you must hold and accrue interest payable to the tenant. You can claim the accrued interest in that year as an expense.

But it has been some year's since I was a landlord, so I'd check further, perhaps w CRA or a current accountant.


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## AltaRed (Jun 8, 2009)

The OP said first and last month's rent... not damage deposit. Perhaps the OP should clarify.


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## OnlyMyOpinion (Sep 1, 2013)

AltaRed said:


> The OP said first and last month's rent... not damage deposit. Perhaps the OP should clarify.


Good point, and some provinces (like Ontario) don't actually allow a damage deposit, so I won't muddy the waters any further.


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## bds (Aug 13, 2013)

We did not collect a damage deposit, just first & last month's rent upon signing. We're in Ontario and I don't think that's allowed here.


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## Spudd (Oct 11, 2011)

http://canadianmoneyforum.com/archive/index.php/t-17806.html


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## bds (Aug 13, 2013)

Thanks for all the answers so far. I have one more question about this: can we claim the land transfer tax and lawyer fees we paid on closing? If it makes a difference, we will be living in the home this year, but in 2016 we were not.


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## Spudd (Oct 11, 2011)

bds said:


> Thanks for all the answers so far. I have one more question about this: can we claim the land transfer tax and lawyer fees we paid on closing? If it makes a difference, we will be living in the home this year, but in 2016 we were not.


I'm pretty sure those adjust your ACB but they cannot be applied as expenses.


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## gardner (Feb 13, 2014)

bds said:


> we will be living in the home this year, but in 2016 we were not.


It might be worthwhile to get an appraisal when the use changes between investment/income property and residence. If you later convert it back into an income property after having it as a residence for some years, you would want to be able to document the portion of capital gains that is exempt due to it being your residence.


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## canabiz (Apr 4, 2009)

stardancer said:


> Use this form to report rental income http://www.cra-arc.gc.ca/E/pub/tg/t4036/
> 
> As mentioned above, if you plan on moving into half the home, the expenses for that half will not be considered rental; however, if you will be renting it out once it is finished, then the expenses can be considered rental expenses. Be aware that not all renovations are operating expenses; some may be considered capital expenses. Read all you can about capital expenses and capital cost allowance. *You will have to decide if you want to take CCA on the house or not as you go along.* I never did take CCA on my house, as quite a few of the renovations were large enough to add to the basic value of the house.


Sorry to hijack the OP's thread but regarding CCA, we have a newer (built in 2014) townhouse for rent and I am wondering if I should claim CCA (Capital Cost Allowance) for income tax purpose?

If so, could you please let me know what Class I should use (I am guess Class 1) and what information I need to provide because there are a bunch of fields I am not familiar with (Opening balance of the undepreciated cost, To whom the CCA should be allocated etc).

It's a little bit overwhelming and I am trying to read/do research as much as I can.

What are the pros and cons of claiming CCA for a new(er) townhouse rental? We intend to keep this for the long haul.

Thanks.


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## Eclectic12 (Oct 20, 2010)

The trade off is that the undepreciated capital cost (UCC) is lower than the eventual selling price.

The difference between the original cost and the UCC will be added back to income. If the selling price is greater than the original cost of the building, then the difference between the selling price and the original cost will be a capital gain. When purchasing or selling a rental property, it is important to break down the purchase or sale price between buildings and land. 
http://www.taxtips.ca/personaltax/propertyrental/rentalexpenses.htm


It would seem to me to boil down whether one figures the yearly amounts can be put to work in a way that will outweigh the increased future tax bill (maybe invest in a TFSA?).


Cheers


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## AltaRed (Jun 8, 2009)

FWIW, when I had a rental townhouse for 10 years, I never took CCA because I knew it was not going to be forever, and the tax deferral value was not worth the trouble. If investment RE is a key long term part of your investment portolio like JAG, then it would be different.


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