Section 7 – Investments
Rental income is income from property if the taxpayer rents space and provides basic services only, such as heat, light, parking and laundry facilities. However, if the taxpayer provides additional services to tenants such as cleaning, security and meals, the taxpayer may be considered to be carrying on a business. The following comments relate only to rental income from property.
Unlike other income from property, net rental income or loss is included in the calculation of earned income for RRSP purposes (see Section VIII).
Mandatory reporting (Quebec)
In Quebec, the RL-31 slip must be prepared by all persons or corporations that own a building with at least one rental unit. For the 2018 year, a copy of this slip will have to be remitted before February 28, 2019 to all individuals renting or subletting a unit as at December 31, 2018. Information provided on this slip is required for the purposes of the Solidarity Tax Credit (see Section II).
A taxpayer has a rental loss if rental expenses, before depreciation, exceed gross rental income. A rental loss is deductible against other sources of income if the rental expenses were incurred to earn a profit.
A taxpayer may deduct any reasonable expenses incurred to earn rental income. Current expenses may be deducted in the year they are incurred but capital expenditures, which provide a lasting benefit or advantage, are deducted through capital cost allowance. When a taxpayer makes major repairs to a rental property, he/she has to determine whether the expense is current or capital. Capital expenditures include the acquisition price of rental property, legal fees connected with the purchase of the property, transfer fees and the cost of furniture and equipment included in the rental property.
The most common deductible expenses include:
- Municipal taxes, insurance, electricity;
- Commissions paid for finding new tenants;
- Landscaping costs;
- Maintenance and utilities costs;
- Accounting fees, interest expense, advertising costs;
- Fees to reduce the interest rate;
- Lease cancellation payments.
Finance costs (interest and other costs) have to be taken into account for purposes of AMT (see point 12 of this section) to the extent they create a rental loss. This may be particularly important to taxpayers deducting substantial rental losses.
Renovations for Disabled Persons
A taxpayer who renovates an existing rental property to accommodate disabled persons may deduct outlays and expenses5 as current expenses that do not have to be amortized. Expenses incurred for disability-related equipment such as elevator car with Braille position indicators, certain telephone devices and disability-specific computer attachments are also considered current expenses.
Costs incurred during the period of construction, renovation or alteration of a property, such as interest, promotion expenses, legal fees, accounting fees and property taxes are not deductible and must be added to the cost of the property.
Motor vehicle expenses may be deducted if the vehicle is used to transport tools and materials to the rental property and if the owner personally does the necessary repairs and maintenance to the property. A taxpayer who has more than one rental property may deduct expenses in respect of a motor vehicle used for collecting rents, supervising repairs and managing the properties.
Capital Cost Allowance
Capital cost allowance may not be used to create or increase a rental loss. Furthermore, a taxpayer may not claim capital cost allowance on the cost of land. A rental property that costs $50,000 or more must be included in a separate class. The most currently used capital cost allowance rates are indicated in Table C6 – Capital Cost Allowance Rates of the Forder – Corporate Taxation and U.S. Federal Tax Rates.
If you claim capital cost allowance on a rental property, you might have to include recaptured capital cost allowance in your income in the year you sell it.
5 In Quebec, an eligibility certificate may be required from the Régie du bâtiment.
This document has been updated on August 31st, 2018 and reflects the state of the Law, including draft amendments, at that date.