What to do
1. Determine whether your client’s income is from property or from a business.
› Income from property: Your client provides rental space and basic services, such as heat, light, parking or laundry.
› Income from business: Your client also provides services, such as cleaning, security or meals. “The more services you provide, the greater the chance that your rental operation is a business,” says CRA.
a Enter your client’s gross rental income on Line 8299 of T776 and Line 160 of her return.
CRA says income includes goods-in-kind and services, such as a renter replacing a broken toilet. Calculate the fair market value of the good or service and include it in income, says Greg Weiler, tax partner at BDO Canada LLP in Kitchener-Waterloo, Ont.
b Deduct expenses, including maintenance and repairs, insurance, property tax and utilities on Lines 8521 to 9270.
Client’s shouldn’t list items like a new roof, heating system or a remodelled kitchen as a maintenance expense, says Weiler. If something extends the life of the property, it’s a capital expense, he says.
c Calculate your client’s undepreciated capital cost using Area A of T776.
d Enter net rental income from T776’s Line 9946 on Line 126 of the return.
1. Renovating an older building is a capital cost, says CRA. Capital costs include:
› purchase price;
› professional accounting, legal, engineering and construction fees;
› improvements and additions to the property; and
› loan interest, accounting fees and property taxes from the time the building is under construction.
a Add the purchase price of the property and the expenses incurred to renovate in Area C of form T776, and enter the total on Line 9927.
b Enter the total from Line 9927 in Column Three of Area A.
2. If your client qualifies, claim the GST/HST New
Residential Rental Property Rebate. (See “Save landlords sales tax,” below.)
a Complete form GST 524 GST/HST New Residential Rental Property Rebate Application.
b, Submit copies of your client’s purchase agreement, statement of adjustments, and rental or lease agreements.
c If your client buys a building, she has two years from the month the property becomes taxable to file for a rebate. If she builds it, she has two years after from the month construction is completed to file.
d If the building has multiple apartments, also complete form GST 525 Supplement to the New Residential Rental Property Rebate Application – Co-op and Multiple Units.
If your client loses money on her property, such as from uncollectable rent, deduct it from gross rental income. To be eligible, the debt must:
› be owing at the end of the tax year; and
› have become uncollectable during the tax year; and
› have been included or deemed to have been included in your income for the year or a previous tax year.
a CRA requires proof of the debt, such as a notice to creditors, or a letter from the tenant.
b List losses on Line 9945 of T776.
Your client can’t claim a rental loss if she’s renting property at a rate below fair market value to a non-arm’s-length party, says CRA. If your client claims losses every year, CRA may reassess her return, says Weiler. The agency may conclude your client isn’t operating the rental as a true business.
Sources: CRA; Greg Weiler, tax partner at BDO Canada LLP in Kitchener-Waterloo, Ont.
Read: Tax tips for cottages
Save landlords sales tax
Your client is eligible for the GST/HST New Residential Rental Property Rebate if she:
› purchased or built a new residential rental property;
› substantially renovated a residential rental property;
› expanded a multi-unit rental property;
› converted a commercial property into a residential rental property; or
› leased land for residential purposes.
Each rental unit must have a fair market value of less than $450,000, says CRA.
Originally published in Advisor's Edge Report
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