If I understand what you’re saying correctly, I can claim a percentage (although small) of my TOTAL car expenses (loan interest, gas, maintenance, insurance etc.) for the year, as “business” for the rental unit.

That correct?

I’m keeping a log this year of my travel to and from the rental unit, so that should help me.

What “value” do you claim on your tax return when travelling to and from the rental unit? I know you can claim mileage for a tax deduction, but how?

Do you put a fraction of the gas amount paid? Line # 9281 for Motor Vehicle?

e.g., 200 city-km in one calendar year = 1/2 tank of gas @ $ 0.90/L??

Thanks in advance,
Mark

I was curious….if you feel comfortable sharing….how many of you declare rent income as income?

If you do declare rent as income, are there any deductions that can be made to offset this?

Thank you!!

If it was done via a corporation instead, is the rental income considered passive investment income and therefore taxed at 48.7% (ontario), along with RDTOH credit of 26.3%? Even with the RDTOH credit, still a huge chunk taxed away, doesn’t make it easy to pay off the mortgage.

At what point does it become worthwhile to have a corporation – in number or value of properties?

If you own it personally, you can use CCA to keep your taxable income about zero for many years. You can also income split if your spouse is in a lower tax bracket.

You can also do the Cash Dam to make your home mortgage tax deductible over time as a rental expense. If you always keep your mortgage high, then there will usually be little or no taxable income.

The eventual capital gain is not taxed at lower rates in a coporation. In fact, it is taxed at the a rate similar to the highest personal tax rate.

Considering that the corporation will cost you $1-2,000/year in accounting and tax costs, how many properties or in what conditions would a corporation become worth the cost?

Ed

I do always collect post-dated cheques, but just need to find more excuses to write off my car trips. But then again, spot-checks of the unit condition can be made frequently.

I’ve always wondered if there was any correlation among tenants willing to give a years worth of post-dated cheques and problems with payment (obviously some of those cheques could bounce). My second tenant just began there occupancy and I don’t forsee problems, compare this to my dad, and father-in-law. They have problems every month!

Just did a quick look up on the Quick tax help and you are able to deduct travel expenses for collecting rents if you own two or more units.

Which caused me to issue a big “whewww!!” :-)

Actually, if you get a bunch of post-dated cheques, you shouldn’t have to travel at all.

Q Cash

I believe collecting rent is actually the one instance where Revenue Canada does not permit deductions.

However, travel to and from the rental unit counts in every other circumstance.

Even with one rental unit, make sure you remember to deduct mileage for going to collect the rent or make repairs. Everyone seems to forget that one.

If the tennants are paying utilities, you can pretty much just claim property taxes, insurance and any interest on a mortgage.

I always take advantage of the capital cost allowance, although there are some who say not to bother because you just get hit with the recapture when you sell. My feeling is that I would like to maximize cash flow now and I don’t know what my situation will be when it comes time to sell.

Julie

You have to have a great working relationship with your bank to make a corporation work for you in this field. Even then, you will have to personally guarantee any loan in this day and age.

The other issues are all valid, however it seems to me that with the condo situation you can write the offer “Julie Whatever (in trust for a corporation to be created later)” and at closing, simply get your lawyer to file the documents in the corporations name. I did that with a building I purchased for my business a few years ago. It might let you get around the limit rule.

QCash

The next issue arose when we were buying two preconstruction condo units in King West. The builder had a bank imposed limit on how many units they could presell to investors which meant the builder wouldn’t accept offers from corporations. The only option we had here was to buy in our personal names and then transfer to a corporation afterwards. Even then we had to personally guarantee our loans, and there weren’t any benefits. The transfer fees weren’t insignificant (I don’t remember what they were though) so we just held them in our own names once again. After that I don’t think we bothered to even try to buy in the corporate name anymore, but I am not sure as our next purchases were in BC so I can’t remember exactly.

After almost five years of having an empty Ontario Corp. we recently closed it because it was costing us a couple thousand dollars every year in fees and accounting charges. Until such time as our accountant or our lawyer says we need to put property in a corporation we’ll continue to hold it as is. All of our property is residential with no more than 3 units in any one building. My parents invest in commercial properties and buy everything in a corporation – however they still have to personally guarantee EVERY mortgage. They hold in a corp. for tax reasons.

It’s different for everyone though – and you should always get professional advice to suit your own situation.

Good stuff – thanks as always FT for bringing such great content to the web.

I agree, “the landlord gets 8 girls in the place and takes in almost triple the rent we take in.”

I had to smile at that one…

@QCash,

A good read and I appreciate the details in your post.
I would however, like to better understand from you, what types of income tax deductions you try and take advantage of, given the number of properties you manage. My wife and I have only one rental unit at this time, but given it’s tax season, I’d like to understand from you and your experience, if I’m really taking advantage of all the deducations I can.

Thanks!

Mark

One mixed use property is something I am looking forward to doing in the future.

I didn’t get that far, but I have a good lawyer who is pretty reasonable on this sort of thing. A numbered company cost me about $1500 to establish (all fees in). The filing of the election would be done at that time, I am sure.

QCash