When you purchase a property as a rental unit, paying attention to Canadian tax laws becomes something of importance. Knowing which expenses you are able to claim on your taxes will help you make the most of your return and your investment. Lowering your taxable income will help reduce your tax burden, which in turn maximizes your profit. There are a number of different items that you can include on your taxes that could make all the difference between owing a lot or a little on your investment property.
Your deductions may vary
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While there are many things you can deduct from your taxes in order to lower your taxable income, some of the items frequently suggested only apply to rental units that you don’t also live in. When buying a condo as an investment property it’s likely that you don’t also live there so these factors shouldn’t be an issue but if you do, you’ll have to figure out how much of your property is a rental so that you can file accordingly.
Make sure you deduct everything you can
There are several items you can deduct from your taxes in order to minimize your taxable income. While you may find that not all apply to you, it is a good idea to be informed of the possibilities so that as you become more experienced at owning investment properties and even add new properties to your portfolio you are able to recognize opportunities as they arise.
The deductions available to you as the landlord of an investment property are:
- Ordinary and Necessary deductions- things like hiring a plumber to fix a leak or buying a computer program to help you manage your properties
- Property insurance premiums
- Mortgage interest
- Property taxes
- Utilities that you pay for
- Any advertising fees that you incurred while trying to rent your unit
- Any property management or administration fees you incur
- Travel expenses incurred in the direct operation of your rental unit
Some items can’t be deducted
While there are a good number of costs and expenses that can be deducted from your return, there are a few that can’t be including:
- Your mortgage principal
- The cost of your own labour
- Any penalties incurred on your notice of assessment
- Personal expenses of the portion of the property you live in, if you live in your rental property
- Any land transfer taxes from the purchase of your property
Keep excellent expense records
When it comes time to factor your deductions into your tax return if you don’t have great documentation of each expense, there is no use in trying to claim it. The Canada Revenue Agency is not a department that is going to take your word for it, so be sure to stay on top of your paperwork. Save every receipt, contract and all expense-related documents so that come tax time, you are able to hand everything over to your accountant who can ensure they get the maximum deductions for you.
For example, if you are claiming anything related to your vehicle make sure to keep a detailed record of your driving distances, dates of travel and the exact reason for the travel. It’s always better to keep too many details than not enough!
Pre-Construction Condos offer a tax rebate
If you are buying a pre-construction condo in Ontario and can provide a copy of the lease showing that the unit is rented for the first 12 months after closing, you will be eligible to apply for a tax rebate of the HST. This provides new investors a nice break on their property and can amount to up to $30,000.
Hire a tax professional
If you have any concerns or confusion about what you can and can’t claim on your tax return, it is always a good idea to hire a professional accountant to help you maximize your return. A certified accountant will be able to ensure you receive the best results possible from your annual return, which in turn allows your investment to work for you. The expense of hiring a professional can even be included in your deductions!