April has arrived, and instead of spring, it is the daunting tax season. And if you’re a landlord, you might have a lot on your plate for the 2023 tax year.
Each landlord has a unique tax position. It’s your responsibility to follow the rules the Canada Revenue Agency (CRA) set out to encourage landlords to keep up with the CRA for the latest news and updates.
But don’t worry — in this article, we’ll go over basic tax principles, tips for getting a more significant return, and what’s new for the 2023 tax filing season.
The basic tax principles for landlords
Filing taxes as a landlord are:
- Organized – make sure to organize all your files in a secure place
- Professional – separate your purchases from your rental purchases
- Accurate – remember to keep all itemized receipts to verify the nature of the expense
Rental income vs. business income:
It’s important to know whether the money you’re getting from your property can be classified as rental or business income.
- Rental income is when you provide housing; business income is when you give not just housing but also other services
Share of ownership:
In Canada, the share of ownership is when you don’t fully own a rental property. For example, it would typically be split 50/50 between spouses or family members. Or, if you own it 100% on your own, then you would claim all the income as your own.
How to claim work-from-home expenses
Landlords would want to take advantage of the home office expense this year if they continued to work from home in 2023. The home office expense is available to anyone who worked from home for at least half the time over four weeks or more because of the pandemic.
There are two versions of processes:
Simplified process
As part of the simplified process, people can claim up to $2 per day up to a maximum of $500. This would cover a range of expenses you had because you were stuck working at home.
Traditional detailed process
Landlords will want to try to go for this more traditional detailed process because it can add up to more than $500 in tax relief. To file with this process, you will need a T2200 from your employer, plus you’ll want to figure out the square footage of both your home and your office.
Tax tips for property owners – how to get a more significant return
At the end of the day, everyone, including landlords, wants to make sure they’re getting the best recovery possible.
There are five key areas where you can help yourself to maximize your return:
- Claimable expenses
- Mortgage payments
- Everyday expenses that people tend to overlook or forget
- Current costs vs. capital expenses
- Claiming a loss
- Bookkeeping and tax tips
- Claimable expenses
There are many expenses that landlords and property owners incur that they will want to claim for a better return. This can include things like insurance and interest costs. Additionally, some repairs or routine maintenance you do on your property can be claimable.
Plus, if you obtain professional services, that can also be a claimable expense. Finally, keep those receipts for trips to Staples because you can also claim office supplies.
- Mortgage payments
You cannot deduct your mortgage payment.
However, you can claim any interest you incurred on borrowed money to maintain the investment. Any interest on your mortgage, line of credit, or any other loan for your investment property can be claimed.
We cover this at length in the third section of the live event in our discussion of rising interest & mortgage rates.
- Everyday expenses that landlords overlook
Natalija shared some hidden expenses that people often forget to claim even though they’re eligible. This will include things like:
- Insurance
- Interest on mortgage payments (especially for 2022)
- Professional services
- Office supplies
- Repairs and maintenance
- Utilities
Additionally, from the perspective of investment analysis and financial planning, the most common costs that investors forget to include when they are looking at properties as income properties are:
- Vacancy
- Property management
- Capital expenditures
- Current expenses vs. capital expenses
Natalija covers the difference between current and capital expenses. Here’s a brief overview of what was covered:
Essentially, current expenses are day-to-day costs that keep your property reasonably maintained.
This includes things like:
- Fixing a broken sink
- Painting a fence
- Replacing a lightbulb
However, capital costs are expenses that go beyond that. They add considerable value to your property. This includes repairs that extend the useful life of your property, improve it beyond its original condition, or any repairs made before selling a property or as a condition of a sale.
- Claiming a loss
So, how can you claim a loss if your rental expenses were more than your rental income? Natalija covers that in our webinar.
When filling out your T776, your tax-filing software will automatically calculate this. Since your rental property is meant to generate income, you may need to provide additional documentation to explain why you saw a loss.
- Bookkeeping and tax tips
Bookkeeping is one area where people can help themselves greatly to make tax season go more smoothly, saving them time and energy – sticking to either digital or paper when keeping track of your income and expenses, as trying to do both will only confuse them.
For example, instead of checking emails, texts, and voicemails — you can keep all communication between you and tenants in the app. Our chat timeline feature is also where you send contracts to sign, so it’s all there for you, securely stored; you don’t have to print, file, and chase down lost emails.
Looking for advice on your next property investment in Toronto, Ottawa or Vancouver? Contact our Canada team, who will lead you to the ideal investment planning you will flourish with.
