What are the tax implications of my rental income?

Rental income from rental properties must be reported to the Canada Revenue Agency. It depends on how you own your rental property whether you can deduct expenses from your rental income.

How Much Tax?

You can expect to pay between 20% and 40% in tax on your net rental income, depending on your personal situation (marital status, rent rates, additional income).

Is Rental Income Counted as Earned Income?

No. Even though it's not considered earned income, it's still taxable and reportable.

Rental Income Examples

• You are renting one of your bedrooms
• Renting out your basement
• Renting out your condominium unit or house

Expenses to Deduct

To figure out your taxable rental income, you are able to deduct a few things. Rental property management and maintenance expenses are also deductible. That includes properties that are temporarily vacant. Among the deductible expenses are:

• General cleaning and maintenance
• Insurance premiums
• Repairs
• Specific travel/vehicle expenses
• Garbage removal fees
• Advertising costs
• Local property taxes
• Depreciation
• Management fees and office expenses
• Utilities
• Commissions
• Mortgage interests

Every year, it's difficult to keep track of everything. It can be difficult to keep track of everything from the first time you look at rental properties to the time you rent them out.

As a result, most landlords and corporations prefer to outsource their tax returns to tax accountants, who have extensive experience in the process. You could also talk with real estate investment company Toronto for more information.

Submission of Tax on Rental Income

In the year that you receive income, you must report it to the government. You must report the rent you collect for January 2020 on your 2019 tax returns, for example, if you collect the rent in December 2019.

If you receive a security deposit for the first and last month's rent and plan to return it to the tenant, then you need not include it in income.

You must report the value of goods and services the tenant provides as rental income when filing your tax returns. An investment management Toronto can help you in this regard.

Tax Free Rent

You cannot claim rental income as tax-free in Canada because it depends on the ownership structure of your business. The rental income itself isn't considered tax free in most cases since you can deduct some of its costs of operation from it. However, you can deduct some rental income and that can be tax free sometimes.

How to Avoid Paying Tax?

Rental income cannot be avoided or skipped without cause, but using tax credits for your business and legal deductions can reduce the tax burden you or your business face.

You should work with a CPA to ensure that your business is organized correctly to minimize your tax rates. Your business will benefit most if you select a CPA who is experienced in real estate taxation laws.

Status of Rental Income

The income received from a rental property is generally treated as personal, other income by the Canada Revenue Agency. In this case, however, income from renting out property should be treated as self-employment income rather than other income.

What about Non-Residents

The tenant or property manager generally withholds 25% of the gross income of non-residents from Canadian real estate rental income. A non-resident's final tax obligation to Canada is generally the 25% withholding tax payment. They should be asking questions and exploring different perspectives in order for both of them feel like their concerns are being heard by one another.

Property management is essential to ensuring that your rental property is rented long-term and will not go vacant for extended periods of time as well as ensuring you get a market-related rental.