How To Report Your Rental Income And Expenses On Your Personal Income Tax Return?

April 6, 2021 | Written by: Sohail Afzal

how-to-report-your-rental-income-and-expenses-on-your-personal-income-tax-return

Canadians who earn rental income by renting out their property are required by the CRA to declare their rental income on their tax return. The CRA establishes the difference between ‘Rental Income’ and the ‘Business Income’ based on the number of services provided to tenants. When you provide space and basic services such as heating, lighting, parking, and laundry services, the income earned would be considered as ‘Rental Income’. If you provide services to your tenant, apart from the space and other additional services, the CRA believes that you are operating as a rental business and that you are required to report your rental income as a business income.

If you provide additional services like security, cleaning, etc. to your tenants, you should report your rental income as a self-employed business. You must declare your gross rental income on Line 12599 and you may also deduct all qualifying expenses to arrive at your net rental income on line 12600. You also need to file a statement of income and expenses to report the rental income earned in a calendar year. Form T776 – Statement of Real Estate Rentals is used to calculate your rental income and expenses for income tax purposes. To calculate your rental income or loss, complete the areas of the form that apply to you. You need to fill the following parts of the form T776:

  • Part 1 – Identification
  • Part 2 – Details of other co-owners and partners
  • Part 3 – Income
  • Part 4 – Expenses
  • Calculation of capital cost allowance (CCA)

You can deduct any reasonable expenses you incur to earn rental income. Following are some of the qualifying expenses that you can deduct from your gross rental income:

  • Advertising
  • Insurance
  • Interest and bank charges
  • Office expenses
  • Professional fees (includes legal and accounting fees)
  • Management and administration fees
  • Repairs and maintenance
  • Salaries
  • Property taxes
  • Travel
  • Utilities
  • Motor vehicle expenses
  • Other rental expenses
  • Prepaid expenses

If your rental property qualifies as a business, you will have to report your self-employed income on Form T2125 – Statement of Business or Professional Activities. Form T2125 reports income earned from rental properties, and all of the deductions incurred while operating this business. As a small business owner, you may also qualify to deduct expenses related to a home office; however, if you only declare rental income, you cannot deduct these expenses. For more inquires, you are free to contact and visit GTA Accounting.

Sohail Afzal CPA Toronto

Sohail Afzal, CPA, CMA, MBA

Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.

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